A private investment firm led by Energy Secretary Rick Perry’s son has notified the Securities and Exchange Commission that it’s seeking investors for a new energy fund, raising concerns about the potential for private businesses run by the offspring of high-ranking government officials to benefit from their parents’ policy decisions without the public being aware.
Griffin Perry is one of three owners of Dallas-based Grey Rock Energy Partners, which runs pooled investment funds that take stakes in active U.S. oil and natural gas drilling projects on behalf of wealthy investors who can meet a hefty minimum investment threshhold.
On April 19, the SEC published Grey Rock’s latest regulatory filing, which created Grey Rock Energy Fund III-B. It marked the first new fund the group is offering since Griffin Perry’s father became President Donald Trump’s energy secretary, and comes amid escalating concerns about conflicts of interest in the Trump administration.
Watchdog groups have two worries about situations like this. One is that existing investment rules allow for little public disclosure about private funds like Grey Rock, making possible conflicts of interest nearly impossible to spot. Neither the names of the investors nor their individual stakes are shared with the SEC, which requires just minimal information on the number of investors and sum of investment money under management.
“The lack of transparency in these types of funds greatly inhibits our ability to meaningfully identify and monitor conflicts of interest arising from his son's business,” said Virginia Canter, legal counsel on executive branch issues for the watchdog group Citizens for Responsibility and Ethics in Washington. “Conflicts can arise from both the underlying assets being managed by Grey Rock and the investors in Grey Rock.”
The other concern is that conflict-of-interest rules for politicians extend only to spouses and young kids, not grown ones.
“The criminal conflict-of-interest statute draws a bright-line distinction between adult child and minor child,” said Walter Shaub, who until February 2017 ran the federal Office of Government Ethics.
Many government ethics experts disagree with that, Shaub noted. “In the case of an adult federal employee and their adult child, reasonable minds may differ.” Griffin Perry is in his mid-30s.
Conflict of interest controversies have dogged other Trump cabinet members and even the president himself. Trump refused to divest himself of his global business empire when he took office, sparking complaints that he could be influenced by foreign governments and corporations that book extensive pricey stays in the Washington’s Trump International hotel, for instance.
In addition, Environmental Protection Agency chief Scott Pruitt was found to be enjoying low-cost rent from the wife of someone who lobbied EPA. And Jeff Miller, who ran Perry’s presidential campaign, drew headlines last year when he became a lobbyist on behalf of the company pushing the Dakota Access pipeline, Energy Transfer Partners, and AECOM, which seeks Energy Department contracts at nuclear sites.
A review of Miller Strategies’ federal disclosure for last year shows it earned more than $2 million in lobbying income, the biggest chunk from oil and gas interests.
There’s no evidence of anything untoward in the younger Perry’s business, or that he is cashing in on his father’s post. But there’s also little way of knowing that. Pooled investment funds that seek exemption from disclosure are subject to regulatory audit at least once every seven years, so the government isn’t exactly looking in, and in any case those audits aren’t public.
Griffin Perry didn’t respond to requests for comment from McClatchy last year or this month.
Secretary Perry held stakes in his son’s funds but sold them to undisclosed investors when he assumed his cabinet post last year for somewhere between $200,000 and $500,000. He had to do that not because his son was involved but because the fund was focused on energy companies whose fortunes he could affect. If Perry had to take action on something that directly involved Grey Rock, as a former major shareholder he’d have to recuse himself from the matter — but only during his first two years in office.
Government standards of conduct generally discourage the mingling of personal and business relationships, especially with close relatives. But there are no prohibitions on the children of cabinet officials working in a field that their parent regulates.
Tagg Romney, son of GOP presidential primary hopeful in 2008 Mitt Romney, drew similar attention when in 2010 he created a private-equity firm and sought to lure former campaign donors to become his investors.
The first Grey Rock fund in 2013 sought to raise $200 million from investors. Filings with regulators for a second fund showed it raised $15 million in 2016, shortly before this father was tapped to become energy secretary.
Regulatory documents for the new fund, called Grey Rock Energy Fund III-B, do not disclose a total offering or an amount to be sold this year, noting each as indefinite. Griffin Perry is listed as the manager and ultimate general partner of the issuing fund.
With a publicly traded company such an ExxonMobil, holders of significant percentages of company stock are named in regulatory filings. Not so for private companies such as Grey Rock.
In its SEC submission made public Thursday, Grey Rock said only it was creating a fund and claimed an exemption from disclosing its investors.
Grey Rock’s undisclosed investors could be very wealthy individuals, pension funds or even university endowments. Regulatory documents for the initial funds show they required a minimum per-investor sum of $100,000 to enter the pooled investment. It’s unclear if this applies to the new fund.
One of Grey Rock’s few, publicly-declared investors is the University of Michigan’s Board of Regents. It decided on Sept. 15, 2016, to invest $30 million with Grey Rock as part of what it calls a long-term strategy, taking a stake in distressed oil and gas producers with the hope that prices will eventually rebound.
“We have a really diversified portfolio,” explained Rick Fitzgerald, the university’s assistant vice president for public affairs, pointing to a $10 billion endowment fund that is the 10th largest among U.S. universities.
According to someone familiar with Grey Rock’s funds, another investor is the University of Richmond, a private liberal arts school that does not have to report its endowment investments. The university’s investment manager didn’t return calls seeking comment.
Up until May 30, 2017, Grey Rock was what’s called an Exempt Reporting Adviser. It didn’t have to register with the SEC and had a lesser reporting burden. Then it changed its status to a SEC-registered “large advisory firm.”
That required it to disclose that it provided investment advice to between one and 10 clients, and declared regulatory assets under management of more than $203.5 million, invested through four funds.
Public records indicate that one of the early investors in Grey Rock was Reagan Reaud and his Austin, Texas-based firm Privateer Capital.
Reaud, son a prominent Houston trial lawyer and Democratic donor, declined to comment.
Grey Rock’s investments are far less risky than, say, wildcatting, where investor money is used to fund oil exploration. Instead it buys out existing stakes in drilling projects from investors who lack the capital that is needed for ongoing energy production.
“With a focus on the lower and mid-market of working interest and minerals, we aim to build positions with low break even costs and provide our investors with attractive risk adjusted returns,” Grey Rock said on its website.
Six years ago, when his father first ran for president, the younger Perry left his job pitching securities for Deutsche Bank to become a spokesman for his father’s presidential campaign to avoid running afoul of SEC regulations. Rick Perry, a former Texas governor, failed in White House bids in 2012 and 2016.
While there have been no complaints that the younger Perry’s fund seeks to cash in on his famous father’s name, that was the accusation in 2007 when, at age 23, he landed a job as a client advisor for Swiss investment bank UBS Securities. He was just 23 at the time and made news because UBS had consulted for Gov. Perry’s proposed sale of the Texas Lottery.