Sen. Warren presses Biden administration’s defense tech investors over conflicts of interest

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Sen. Elizabeth Warren is pressing the Department of Defense’s new tech investment organization over concerns about conflicts of interest, turning up the pressure on the latest government team betting taxpayer cash on entrepreneurs.

The Massachusetts Democrat’s crosshairs are trained on the Office of Strategic Capital, created by the Biden administration last year. Ms. Warren said she fears the office is “already too cozy” with private investors, in a letter sent this week to Undersecretary of Defense for Research and Engineering Heidi Shyu.

“I write regarding my concerns that the Department lacks the safeguards necessary to prevent conflicts of interest in the Office of Strategic Capital (OSC),” Ms. Warren said. “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.”

As examples of the government investors’ concerning conduct, Ms. Warren cited reports that the office had hired consultants as special government employees who continue to work with tech and defense companies while advising the government’s investors.

“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,” she wrote.

The Department of Defense’s investors are ingratiating themselves to the tech sector by design. The department said last year that the office would be tasked with connecting companies making tech a vital national security interest to funders to help bridge the gap between the lab and production called the “Valley of Death.”

“By working with the private capital markets and by partnering with our federal colleagues, OSC will address investment gaps and add a new tool to the department’s investment toolbox,” said Defense Secretary Lloyd Austin, when announcing the office’s formation in December.

The Department of Defense has a large investment toolbox and has had varying degrees of effectiveness. For example, the Army Venture Capital Fund, established in 2002, was closed last year.

The Defense Innovation Unit, however, is working with the venture capital community on behalf of the department and has offices in Austin, Boston, Chicago, Silicon Valley, and inside the Pentagon, according to its website.

The new Office of Strategic Capital appears less interested in facilitating tech procurement and adoption than other federal departments, and more interested in incentivizing private investors to make decisions benefiting U.S. national security.

Speaking at an Intelligence and National Security Alliance conference in March, the Office of Strategic Capital’s Wesley Spurlock said economic security is national security and that the Defense Department is looking to move toward making investments alongside private investors.

“There’s no one in the DoD that’s going to be investing better than the investors who do this for their job,” Mr. Spurlock said at the conference.

Ms. Warren thinks the department has become too close to those investors. She said she had concerns that the consultants working with the new Defense Department team will have access to “non-public political intelligence information” while not having to observe ethics rules that apply to federal employees.

The Department of Defense received Ms. Warren’s letter and declined to comment on Tuesday.

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