Risk-takers Mnuchin, Ross poised for Trump cabinet posts

From buying a failed bank during the U.S. financial crisis to producing major movies and serving as national finance chairman for Donald Trump's presidential campaign, Steven Mnuchin has a record of winning risky bets.

Now the former Wall Street banker is poised for what could be his biggest challenge yet: Trump's nominee for U.S. Treasury secretary.

Trump is expected to officially name Mnuchin, 53, as his choice for the nation's top financial policy job as soon as Wednesday, a source close to Trump's transition team told USA TODAY Tuesday. The person spoke on condition of anonymity because officials were not authorized to speak publicly about selections.

To associates and friends who were surprised when accepted Trump's invitation to serve as lead campaign fundraiser after the New York presidential primary, Mnuchin offered a potentially prescient explanation.

“Nobody’s going to be like, ‘Well, why did he do this?’ if I end up in the administration," he told Bloomberg Businessweek in August.

The news that Mnuchin is Trump's pick came as reports swirled that Trump would nominate billionaire Wilbur Ross, also considered a risk taker, to serve as Commerce secretary. Ross, 79, made a career out of buying ailing companies in sometimes troubled sectors on the cheap, restructuring them and then selling them for billions of dollars. Ross, too, could be announced as early as Wednesday, the source close to the transition team said.

Trump has praised Mnuchin, who with the Republican National Committee helped raise tens of millions of dollars for the billionaire businessman's winning campaign over Hillary Clinton. However, they weren't always the best of friends.

In a 2008 lawsuit, Trump targeted one of Mnuchin's companies in a lawsuit that alleged Deutsche Bank and other investors improperly balked at extending multi-million dollar construction loans on the Trump International Hotel and Tower in Chicago. The case was ultimately settled.

Mnuchin, a twice-married father of three, is a Yale College graduate who followed his father to renowned U.S. investment bank Goldman Sachs. He started at the financial powerhouse in the 1980s and spent 17 years there, amassing a fortune and becoming an executive vice president of the New York City-based company before his 2003 departure.

His next stop was ESL International, the hedge fund founded by Edward Lampert, one of Mnuchin's Yale roommates and another Goldman alumnus who is now the CEO and chairman of Sears Holdings. Lampert tapped him for a board seat on Sears Holdings-owned retail chain Kmart in 2003. However, Mnuchin left soon afterward to become chief executive of SFM Capital Managment, a fund backed by international financier and investor George Soros.

Mnuchin's SFM tenure was similarly brief. In 2004, he co-founded private hedge fund Dune Capital Management with Daniel Neidich, another former Goldman executive. The fund invested in equities and real estate — including some Trump projects.

Additionally, the fund invested in the U.S. movie industry. Starting in 2006, Mnuchin reached a three-year deal in which an entity called Dune Entertainment agreed to invest $500 million in a string of 20th Century Fox movies, according to multiple media reports.

The transaction launched a deeper Mnuchin dive into entertainment investments and co-producing that ultimately included the Hollywood blockbuster success Avatar, The X-Men franchise, American Sniper, Gravity and The Lego Movie. Those films scored box office wins. Yet other movies that involved Mnuchin, such as Our Brand is Crisis, a fictional account of American campaign strategists involved in a Bolivian election, flopped.

In 2013, Mnuchin, filmmaker Brett Ratner and Australian businessman James Packer joined in an entity called RatPac-Dune Entertainment that agreed to $300 million in co-financing for as many as 75 films by Warner Bros. Pictures, according to the movie company and media reports.

The following year, Mnuchin partnered with Ryan Kavanaugh and an investment group to buy debt and an equity stake in Kavanaugh's Relativity Media. He also took a seat on the Relativity board of directors, becoming the company's non-executive chairman.

"Steven has been a trusted advisor for years, and I personally recruited him to join our board," Kavanaugh said in a statement at the time. "he brings an unrivaled perspective on the every-increasing value of content in Hollywood and Wall Street."

The move also ended up snarling Mnuchin in controversy.

Five years before taking the Relativity post, he led an investor group that bought California-based IndyMac Bank, which had collapsed in a more than $7 billion implosion during the financial crisis. The investor group, which paid the FDIC roughly $1.55 billion to take the bank off the FDIC's hands, was backed by Soros, hedge fund manager John Paulson, computer manufacturer Michael Dell, private equity investor Christopher Flowers and others.

IndyMac became OneWest Bank, with Mnuchin as its chairman. The deal drew criticism because it was finalized before FDIC Chair Sheila Bair managed to institute a change that would require private equity buyers like the Mnuchin-led group to maintain a 10% leverage ratio at newly-resurrected banks and hold the investments for at least three years.

Bair, now the president of Washington College, declined to comment for this story. However, recounting the IndyMac collapse and sale in Bull By the Horns, her 2012 book about her FDIC tenure, Bair characterized the regulator as boxed in.

"The reality is that those who are brave enough to buy distressed companies in a down market — whether banks or any other type of company —  expect to make a return commensurate with the risks they are taking," wrote Bair. "The FDIC, as seller, had no good options."

New criticism — and lawsuits — came after Relativity Media sought federal bankruptcy court protection in July 2015. By then, Mnuchin had left the movie company's board. And he was weeks away from selling OneWest Bank to CIT Group at a price that produced a hefty profit for him and fellow investors — $3.4 billion in cash and stock, more than doubling their investment.

One of Relativity Media's creditors, RKA Film Financing, took a cynical view of Mnuchin's dual involvement with the movie company and the bank — which was also owed millions by Relativity.

In a 2016 New York Supreme Court lawsuit, RKA said Relativity's collapse "amounted to a classic Ponzi scheme," and labeled its CEO Kavanaugh "a con man."

Mnuchin had held "a unique position," the lawsuit alleged, "affording him knowledge of both Relativity's precarious financial position and the ability to ensure certain creditors — namely OneWest Bank — were able to siphon away funds that had been commingled" with RKA's investments.

The lawsuit also charged that OneWest swept approximately $50 million from Relativity's bank accounts before the collapse.

A bankruptcy court declaration by Timothy Coleman, a Blackstone expert who worked with Relativity on restructuring plans, said the OneWest transfers "further strained" the movie company's "already problematic liquidity situation," and also forced postponement of some film projects.

The movies included Masterminds, which features Zach Galifianakis, Kristen Wiig and other actors in a comedy based on an actual bank robbery. The film ultimately opened on Sept. 30 this year.

A Mnuchin court filing called his inclusion in RKA's lawsuit "not just baseless, but sanctionable." He moved to throw out the case, as did Kavanaugh. Manhattan Supreme Court Justice Charles Ramos dismissed the lawsuit in an October decision that left the door open for the complaint to be updated and refiled.

Benjamin Naftalis, an attorney for RKA, said the company "plans to file an amended complaint that will continue to include Mr. Mnuchin."

Though Mnuchin is best known publicly for his business dealings, he and his family also became known as some of the thousands of investors caught up in the aftermath of Bernard Madoff's notorious Ponzi scheme.

More than $3 million that Mnuchin and his brother inherited from their deceased mother's estate represented fictitious profits from Madoff's estimated $20 billion scam, court-appointed trustee Irving Picard alleged in a 2010 bankruptcy court filing. But a court decision said the family's withdrawals, and similar Madoff payouts to other investors, had occurred more than two years before the scheme collapsed.

As a result, the money could not legally be recovered to help repay the disgraced financier's less fortunate customers, the court ruled.

Although Mnuchin so far has emerged relatively unscathed from several court challenges, a new federal complaint filed after Trump's win potentially could become a factor in Senate confirmation hearings for the Treasury post.

OneWest was criticized by some housing advocates over a wave of foreclosures filed amid the financial crisis.

Additionally, the bank, its successor, CIT Bank, and CIT Group were targeted this month with a new federal complaint that alleged they engaged in redlining and other discrimination against minorities. Two groups that advocate for fair housing and equal access to credit filed the complaint with the U.S. Department of Housing and Urban Development.

"Our analysis of OneWest suggests the bank has no significant branch presence in communities of color, and not surprisingly, its home loans to borrowers and communities of color are low in absolute terms, low compared to its peer banks, and low when compared to what one would expect given the size of the Asian-American, African-American and Latino populations in California," said Kevin Stein, a deputy director for the California Reinvestment Coalition, one of the groups that filed the complaint.

In response, CIT Group said it is "committed to fair lending and works hard to meet the credit needs of all communities and neighborhoods we serve."

Mnuchin did not respond to USA TODAY interview requests submitted to a company spokesman. However, Trump's presidential transition staff provided a statement in which former OneWest chief executive Joseph Otting said the bank "remained committed to fair lending and meeting the credit needs of all borrowers in its communities, including those in distress."

Ray Locker and Paul Davidson contributed. 

Stein said the allegations submitted to HUD should be examined during Mnuchin's expected confirmation hearings.

"It was not our intent in filing the case. But it should be considered," said Stein. "The American people would want a Treasury secretary who understands the lives of ordinary people and how they interact with major financial institutions."

USA TODAY


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