WASHINGTON — Federal officials Wednesday were asked to investigate whether an Overland Park, Kansas, trucking company broke federal law when securing a $700 million loan through a federal pandemic aid program — a sum that accounted for 95% of the money allocated to the program.
South Carolina Rep. James Clyburn — who heads a U.S. House of Representatives Committee tasked with investigating waste, fraud and abuse in federal pandemic relief programs — sent a letter to the Treasury Department’s inspector general asking it to investigate whether Yellow Corp., formerly known as YRC, made false claims and statements about its company when requesting the loan from the government, in potential violation of the Federal False Claims Act.
The company called the claims “unsubstantiated” and “demonstrably false.”
Clyburn’s letter comes on the heels of a report by the House Subcommittee on the Coronavirus Crisis that found the administration of former President Donald Trump ignored the advice of Defense Department experts by granting the company a loan through a program to help firms considered critical to the country’s national security continue to operate through the pandemic.
The committee’s report highlights another example of the company making use of its connections to the Trump White House.
The former president picked the company’s Chief Executive Darren Hawkins to serve on a coronavirus economic task force and he tapped former CEO William Zollers to the Postal Service Board of Governors in 2020. The company also has received $600 million in funding from private equity firm Apollo Global Management, which had close ties to the Trump administration and the Trump family.
But a lawyer representing the company downplayed ties to the former administration. He noted the trucking company was working with the Biden administration to resolve the nation’s supply chain shortages.
Attorney Marc Kasowitz said the company voluntarily cooperated with the committee, providing documents that show how the loan was used. He said the loan enjoyed bipartisan support and helped save 30,000 jobs during the height of the pandemic.
“In truth and fact, and as this Committee now indisputably knows, Yellow’s eligibility for and use of its CARES Act funds is, was, and continues to be appropriate in every respect,” he wrote to the committee Tuesday.
The loan to YRC was authorized through the federal CARES Act, which pumped $2.2 trillion into the U.S. economy in the heart of the pandemic, allocating money to small businesses, local and state governments and direct payments into many people’s bank accounts.
But while the money helped prop up the economy in a time of unprecedented economic crisis, it has also proven ripe for abuse. Congress is currently attempting to crack down on rampant fraud and abuse, from local governments misspending federal money to people who misrepresented themselves to access federal funds.
Kansas Sens. Jerry Moran and Roger Marshall did not immediately respond to a request for comment. Neither did Kansas Rep. Sharice Davids, whose district includes Overland Park.
Moran specifically asked the administration to help firms like YRC, which he described as “hugely important to the economy.” In May 2020 testimony on coronavirus relief, he noted that the company employed nearly 30,000 people.
“It is a company that in the absence of assistance, the jeopardy of its employees are significant. I think there’s a lot of companies out there like that. I think there’s a number of other companies in Kansas like that. And I want to make certain we are doing the things that are necessary to prepare to be of assistance to them.”
Treasury Secretary Steven Mnuchin assured Moran at the time that he would look specifically at YRC and similar firms.
Former Sen. Pat Roberts, who represented the state at the time, told The Kansas City Star on Wednesday that he believed the whole Kansas delegation supported the loan, but he couldn’t recall the details.
Formerly called YRC, the company last year changed its name to Yellow Corp., a nod to its roots as Yellow Transit, which was founded in Oklahoma City in 1924. Aside from Yellow-branded trucks, the company also operates subsidiaries YRC Freight, Holland, New Penn, Reddaway and HNRY Logistics.
For years, YRC operated out of a 10-story tower on Roe Avenue in Overland Park. But earlier this year, the company moved its headquarters to downtown Nashville. The company committed to maintaining a sizable local workforce and signed a 15-year lease on new offices at the former Sprint Campus in south Overland Park, according to the Kansas City Business Journal.
The CARES Act established a fund called the National Security Loan Program intended to make sure that companies that provided services related to the country’s national security were able to offset their losses from disruptions to the economy during the pandemic.
Yellow, which delivers freight for Defense Department operations, was one of 11 companies that received money through the program. The other 10 companies combined received $35.9 million in loans, just 5% of the total money the Treasury Department approved through the loan program.
The subcommittee on the coronavirus crisis launched the investigation into Yellow in June 2021, a little under a year after the federal government approved the company’s loan.
“Today’s Select Subcommittee staff report reveals yet another example of the Trump Administration disregarding their obligation to be responsible stewards of taxpayer dollars,” Clyburn said in a press release. “Political appointees risked hundreds of millions of dollars in public funds against the recommendations of career DOD officials and in clear disregard of provisions of the CARES Act intended to protect national security and American taxpayers.”
The report shows that the company’s lobbyists were able to secure access to Mark Meadows, Trump’s chief of staff, and that Meadows personally advocated for the loan to the Treasury Department, which was in charge of approving the loan. The committee also found that Trump had spoken directly with a union leader who was coordinating with the company to get federal assistance.
The loan was approved over objections by Defense Department officials. While Yellow claimed that it was responsible for 68% of the Defense Department’s “less-than-truckload” shipping, analysts for the Department of Defense found that it only accounted for 34% of the LTL shipping and that the burden could be handled by other companies. Yellow specializes in moving smaller loads of materials that don’t take up an entire tractor trailer.
Aside from the debate surrounding the company’s purported importance to national security, critics questioned why the government was bailing out a company that was struggling financially even before the pandemic. In 2019, YRC lost more than $100 million.
Defense officials also argued Yellow should not be considered critical to national security because it had been sued by the Justice Department, which alleged the company had overcharged the Defense Department for seven years and made false statements to the government to cover up its misconduct. The Justice Department called the company’s actions “fraudulent and illegal.”
Though the company admitted no wrongdoing, YRC agreed to pay $6.85 million to resolve those allegations in a settlement announced last month.
Despite the objections by Defense Department experts, top officials at the Treasury Department and Defense Department got involved and ultimately approved a loan. They also approved terms that would allow the company to use more than half of its loan — $400 million — to replenish its aging fleet of trucks.
The CARES Act specified that money from the loan program should only be used to offset losses, putting the terms of the loan in contradiction of Congress’ intended purpose of the loan program.
Yellow Chief Financial Officer Jamie Pierson emailed the company’s creditors touting the fact the company would be able to use the loan money to replenish its fleet, saying, “While we had our hand in the cookie jar, we thought we would try to get a little ‘catch up’ capex (capital expenditures) while we were at it,” according to emails obtained by the committee.
Between the fourth quarter of 2020 and the end of 2021, the company said it spent nearly $600 million on new tractors, trailers, technology and other assets. According to the report, the company only spent $145.4 million on capital expenses in 2018 and $143.2 million in 2020.
Company representatives said all expenditures were negotiated with and approved by the Treasury.
The committee also found that the federal government authorized the loan at a lower interest rate than it received from creditors prior to the pandemic.
“The loan terms agreed to by the Trump Administration were impermissibly generous even under Yellow’s own legal counsel’s interpretation of the applicable CARES Act requirements,” the report said.
A lawyer representing the firm noted that the company posted collateral to obtain the loan and gave the government a nearly 30% stake in Yellow stock. That’s now worth nearly $70 million. Yellow also says it has already paid more than $25 million in interest to the government.
Meanwhile, Yellow has increased its pay for the CEO, chief operating officer and chief financial officer. The CEO made $4 million in 2018 and $12.3 million in 2021, while other top officers have left and new officers have been brought in at higher salaries.
Last year, the Congressional Oversight Commission noted that the company spent $570,000 on lobbying efforts in 2020 before receiving the loan. That compared to no lobbying expenditures in 2019, $80,000 in 2018 and $75,000 in 2017.
“The Commission makes note of the correlation between lobbying the government and Yellow’s ability to secure a $700 million loan. The Treasury confirmed that several Senators and members of Congress sent letters to Treasury urging them to underwrite Yellow’s loans.”
U.S. Rep. French Hill, R-Ark., one of three people on that commission, characterized the loan as a “mistake.”
“Based on the oversight work conducted by the Commission,” he said last year, “there is no evidence to support Yellow being critical to national security which means these loans should never have been executed.”
———
