Economy & Budget

Treasury Nominee Hank Paulson Needs to Answer Some Questions

There are many unanswered questions that the Senate Finance Committee ought to pose to Treasury Secretary nominee Henry Paulson during his confirmation hearing.

Key inquiries should involve an unusual land deal Paulson oversaw while simultaneously serving as chairman and CEO of Goldman Sachs and as vice chairman and, later, chairman of The Nature Conservancy (TNC), which is an environmental group that acquires private lands to place them permanently off-limits to commercial and residential uses.

Goldman’s board of directors expressly denied at its 2006 annual shareholder meeting that TNC was involved in the investment bank’s dealings pertaining to the 680,000 forested acres on the Chilean side of Tierra del Fuego. But tax records show Goldman paid TNC $144,000 to consult on the deal.

In January 2004, one month after Goldman’s public announcement that the land — a $35-million asset rightly belonging to Goldman shareholders — would be donated to establish a nature preserve, TNC elevated Paulson to the post of chairman. Additionally, Goldman announced in September 2004 that the Wildlife Conservation Society (WCS) had been selected as the recipient of the land gift. WCS’s 2004 annual report lists Paulson’s son, Merritt Paulson, under its "advisors and trustees." WCS also appears on TNC’s website as an "organizational partner."

The Chilean land originally belonged to Washington State-based Trillium Corp., which acquired it in 1993. Trillium’s original permits would have allowed for traditional harvesting of lumber. Instead, Trillium voluntarily undertook to design a "sustainable" forestry plan, regarded by conservation experts as innovative, highly pro-environment, and unprecedented in terms of scale and promise. Despite having clamored for sustainable development projects for decades, environmental groups mounted a nine-year-long opposition campaign, eventually forcing Trillium into financial difficulty that left the land vulnerable to takeover.

In January 2002, Goldman placed the winning bid on a portfolio of distressed debt that included a $30-million note of Trillium secured by the land. In November 2002, Goldman sued Trillium to collect on the defaulted note. One month later, Goldman took title to the land in settlement of the debt.

Bird-Watching

Although Goldman stated in a December 2003 media release that it "did not originally intend to acquire [the Chilean] land" and it had explored options for selling the notes or the land itself, a Dec. 26, 2005, article in Pensions and Investments paints a somewhat different picture. The article notes that Paulson and his wife were camping and bird-watching on the Chilean land during the Christmas holidays.

"The 680,000-acre reserve was donated for permanent preservation by Goldman Sachs to the Wildlife Conservation Society, which manages the preserve along with a Chilean advisory board,” reported Pensions and Investments. “The real triumph for Mr. Paulson is the big role Goldman Sachs played in this conservation saga. Mr. Paulson — who is chairman of the board of governors of The Nature Conservancy and well connected in the global conservation community — said he was aware that a private equity company had amassed a large parcel on Tierra del Fuego that included a rare hardwood forest slated for logging. Goldman Sachs’ distressed debt team came to him in 2002 with a loan portfolio that just happened to contain a loan that was secured by 680,000 acres of this very forest. ‘I kissed them on both cheeks!’ he exclaimed. Goldman purchased the land in 2003 to donate it for conservation and preservation."

Citing concerns over the apparent use of shareholder assets for Paulson’s personal benefit, a shareholder group that I co-manage asked Goldman’s board in January 2006 to review the Chilean land deal concerning potential conflicts of interest. Goldman’s board was unresponsive, so we pursued the matter at Goldman’s annual shareholder meeting on March 31.

Except for its denial of TNC’s involvement, Goldman continues to stonewall inquiries about the land deal, most recently in an exchange of letters in the Wall Street Journal, responding to an April 4 op-ed criticizing Paulson’s actions.

The Senate now has the unique opportunity to explore this matter with all parties under oath. Questions to consider asking include:

1. Do the minutes of Goldman’s board meetings support Goldman’s contention that the financial and ethical aspects of the land deal, including Paulson’s potential conflict of interest, were fully disclosed to, and reviewed by, its board?

2. What light do other documents and records of Goldman Sachs, The Nature Conservancy and the Wildlife Conservation Society shed on acquisition and donation of the Chilean land?

3. How and when did Goldman, TNC and WCS first become involved in the pursuit of the Chilean land?

4. Why was the $35-million land gift funneled through a little-known Goldman charitable fund set up for the purpose of awarding small academic scholarships?

5. Why did Goldman value the land at $35 million (for tax donation purposes) when the Chilean government valued it at $100 million?

6. Did Goldman/Paulson make any false/misleading public statements about the land deal?

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