Warren: DoD Office of Strategic Capital 'too cozy' with private investment firms, lacks guardrails

The Department of Defense Office of Strategic Capital appears “too cozy” with private investment firms and may lack the proper guardrails to prevent conflicts of interest, Sen. Elizabeth Warren (D-Mass.) wrote to Under Secretary of Defense for Research and Engineering Heidi Shyu on Sunday evening in a letter shared exclusively with The Hill.

Defense Secretary Lloyd Austin, former board member of the defense and aerospace contractor Raytheon, established the Office of Strategic Capital in December 2022 to attract private capital partners and scale investment in national security technologies. Shyu previously described the Office of Strategic Capital as “part of a broader administration-wide effort to ‘crowd-in' private capital in areas where our efforts can boost our future security and prosperity.”

“While I understand that one of the objectives of OSC is to ‘improve the government’s relationship with the venture community,’ I am concerned that this is resulting in a conflation of interests that creates clear conflicts,” Warren, a member of the Senate Armed Services Committee, wrote.

The Under Secretary of Defense for Research and Engineering did not return The Hill’s request for comment.

The Massachusetts Democrat pointed to reporting by The Intercept that found the Office of Strategic Capital urged the government to intervene when Silicon Valley Bank collapsed in March.

Some consultants and advisors to the Office of Strategic Capital also simultaneously work for companies that work extensively with DoD, Vox reported. One consultant, Linda Lourie, works as a senior advisor for the influential consulting firm WestExec Advisors that advises tech and defense companies. Another Office of Strategic Capital advisor, Kirsten Bartok Touw, works as a managing partner with New Vista Capital, which supports emerging aerospace, defense, and logistics and transportation companies.

Neither Lourie nor Bartok Touw immediately returned requests for comment.

Both Lourie and Bartok Touw were hired as special government employees, according to their LinkedIn profiles. Special government employees are prohibited from participating in matters that directly impact their financial interests, but they are not subject to the full myriad of ethics laws applied to federal employees. Senior special government employees who serve for less than 60 days, for example, are not subject to a one-year cooling off period that prevents them from contacting their former agency about official matters.

While DoD previously told Vox these consultants would be limited to broad policy discussions and not included in specific investment conversations, their positions afford them access to non-public political information in the form of briefings, meetings, committee hearings and even personal conversations.

“The OSC appears to be providing these consultants an opportunity to refresh their rolodexes without having appropriate guardrails in place to protect the public interest,” Warren wrote.

Warren, an outspoken critic of the revolving door between the private sector and the federal government, asked Shyu to elaborate on the Office of Strategic Capital’s policies and processes to prevent conflicts of interest by July 28. She also asked for additional information on prospective investments in entities linked to special government employees and companies that contacted the Office of Strategic Capital about the collapse of Silicon Valley Bank.