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By late February 2026, the Pentagon had committed hundreds of millions of taxpayer dollars to buying ownership stakes in private companies. It still hadn’t asked its own lawyers to put in writing why that was legal.
When the Senate Armed Services Committee held a hearing on February 24, 2026, to look at the Pentagon’s equity investment strategy, that absence was the thing that stopped the room. The administration had a real strategic reason. It had signed deals. It had announced plans for more. What it did not have was a clear, formal legal foundation for any of it.
Senator Jack Reed of Rhode Island, the top Democrat on the Armed Services Committee, put it plainly: “The legal basis, in particular, appears questionable.”
What the Pentagon Did
In July 2025, the Department of Defense announced a partnership with MP Materials, an American rare earth producer. The structure was unusual: the government would invest $400 million in newly created preferred equity, with conversion rights and warrants representing 15% of shares that positioned it as the company’s largest shareholder. This was paired with a long-term commitment to purchase rare earth magnets and, reports suggest, a guaranteed price floor for critical materials. MP Materials described it as a transformational public-private partnership to accelerate U.S. Rare earth magnet independence.
Then, in January 2026, the Pentagon announced a separate $1 billion equity investment in L3Harris Technologies’ solid rocket motor division. The plan was to convert that preferred equity into common ownership when the division spun off and went public later in the year.
These were not loans. They were not purchase contracts of the type the Pentagon has used for decades. The government was buying ownership stakes in working private companies, the way a venture capital firm does. The capital belonged to taxpayers, and the authority to spend it that way was, at best, unclear.
Michael Duffey, Under Secretary of War for Acquisition and Sustainment, framed the L3Harris deal as a philosophical shift: “We’ve had a pattern within the defense industry of writing checks from the Department on behalf of the taxpayer to expand the industrial base with no promise of return. This is about to change.” He argued that the equity position would let the American people share in the company’s future success.
A reasonable policy argument, in other words, but not a legal one. The administration’s statutory theory is more developed than that framing suggests, and it deserves a full hearing before being dismissed.
A careful administration lawyer would start with Title III’s broadest clause: that actions under the statute “may be taken without regard to the limitations of existing law.” Read broadly, that language is a deliberate congressional grant of flexibility. It is an instruction to the executive not to let ordinary statutory limits block national security mobilization. Paired with the statute’s authorization to make “provisions” for purchasing industrial resources, the argument is that equity is simply a modern financial tool for achieving what the statute already permits: securing reliable domestic supply of critical materials. The administration could also call on the President’s Article II national security powers. Courts have historically read those powers broadly when the executive acts to protect military readiness and the defense industrial base. Analogous structures exist. In-Q-Tel is the CIA-linked venture entity that takes equity stakes in private technology companies to serve intelligence community needs. It has operated for more than two decades without a direct statutory equity authorization in the CIA’s core statute. The Small Business Investment Company program similarly uses SBA-backed capital, channeled through privately owned and managed SBIC funds, to take ownership positions in private firms. Defense Advanced Research Projects Agency other transaction authority has long allowed the military to structure deals outside standard procurement rules. Supporters would argue that equity is not different from these established instruments. It is a financing tool, and the statute’s “without regard to existing law” clause was written specifically to allow new tools when national security demands them.
That argument can be challenged, and the major questions doctrine creates a serious obstacle to it. But the legal question is truly unsettled, not already decided.
Why the Pentagon Turned to Equity Investment
Rare earth elements are not rare in the ground. Large deposits exist in the United States, Australia, Canada, and elsewhere. What is scarce is the ability to process them into high-performance permanent magnets that go into fighter jets, missile guidance systems, and advanced technologies central to strategic competition with China. That processing capacity is overwhelmingly concentrated in one country.
China accounts for approximately 91 percent of global refined rare earth processing and, according to an analysis by the Council on Foreign Relations, has “effectively locked up global upstream supply” over more than thirty years. In April 2025, Beijing imposed export controls on seven rare earth elements spanning medium and heavy categories — dysprosium and terbium are heavy rare earths, while samarium and gadolinium are classified as medium rare earths. All of these are critical to the magnets in military hardware. By October 2025, China had expanded those controls again. It added five more elements and broadened restrictions to cover related technologies.
Pentagon officials and many China analysts read the controls as a deliberate coercive signal. It was a signal that Beijing held leverage over U.S. military production and was prepared to use it. Some scholars, however, argue that the restrictions also reflect China’s own industrial consolidation goals and its effort to move up the value chain in rare earth processing. That makes the coercive reading disputed rather than settled.
The existing toolkit, as Michael Cadenazzi, the Assistant Secretary of War for Industrial Base Policy, acknowledged during the February hearing, had produced what he called “a failed market-based approach.” The Pentagon could buy magnets on the open market, but that market was limited. It could offer loans or purchase commitments to encourage American companies to build new facilities. But companies were reluctant to make the huge capital investments required without the government taking on some of the financial risk. Stockpiles help. But using them without replacing them only delays the problem.
So the administration decided to become a direct investor. If the government owned a piece of the company, the logic went, it would share the gains and that shared interest might free up capital and commitment faster than any prior tool had managed.
Whether the policy makes sense is a separate question from whether it is lawful.
The Defense Production Act‘s Equity Gap
The Defense Production Act of 1950 is the Pentagon’s main legal tool for building up industrial capacity in the name of national security. Title III of the statute gives the President broad authority to make provision for “purchases of or commitments to purchase an industrial resource or a critical technology item, for Government use or resale.” It authorizes loans and loan guarantees to expand production capacity. It also allows the President to set prices and provide subsidies to sustain production from high-cost domestic sources.
Nothing in the statute authorizes the taking of equity stakes in private companies.
The statute provides for “purchases” of specific materials or products. It authorizes loans, which are debt instruments. It does not authorize equity, which is an ownership instrument. That silence is not an oversight. It reflects a long-held understanding that the executive branch should be careful about directly owning private enterprises. That understanding is rooted in the constitutional idea that Congress, not the President, controls the public purse.
The administration’s apparent counterargument rests on a notable phrase buried in Title III: actions “may be taken.without regard to the limitations of existing law.” An administration lawyer might argue: if the President can make “provisions” for purchasing industrial resources, set prices, make payments, and guarantee loans, then surely the President can structure a transaction that includes an equity component as part of securing critical materials.
The problem is that this argument goes too far. It would allow the executive branch to claim that nearly any form of industrial investment is a permissible “provision” under a statute written in 1950. That statute predates modern venture capital, securitized equity instruments, and the financial structure that now dominates capital formation. The Supreme Court’s 2022 decision in West Virginia v. EPA formalized the major questions doctrine as binding law, elevating a constraint that prior courts had already deployed into a firm limit on exactly this kind of reasoning. Courts should be doubtful of agency claims to vast economic or political significance without a clear statement from Congress. If the Pentagon is claiming authority to directly invest in and partly own American mining companies, courts might reasonably ask whether Congress clearly meant to hand over that power in a statute passed seventy-five years ago.
Senator Reed pressed Cadenazzi on a related concern: whether the Pentagon had looked at the Antideficiency Act, the statute that bars federal agencies from committing funds beyond what Congress has set aside for a specific purpose. Reed asked bluntly: “Have you analyzed that and determined it won’t?” Cadenazzi said that the Pentagon had relied on the Office of General Counsel and the legislative affairs team for legal advice on the MP Materials deal. He said he would push for those opinions to be sent to Congress. He added that the Pentagon expected to fund the quarterly payments through the Future Years Defense Program. That is the multi-year funding plan approved by Congress.
That is not the same thing as saying the Pentagon has received a clear legal opinion confirming it has the authority to commit those funds to equity investments in the first place.
The Missing General Counsel Opinion
The Pentagon had committed to the MP Materials equity deal in July 2025. Seven and a half months later, as of the February 24 hearing, no formal legal memorandum from the general counsel had appeared explaining the statutory basis for what it was doing. Congress had been asking. The opinion had not arrived. The Senate Armed Services Committee hearing record makes clear that repeated requests had gone unanswered.
A general counsel’s opinion is an internal check within the executive branch — a requirement that the agency’s own lawyers formally confirm that its actions comply with the law. When that opinion is missing, especially after repeated Congressional demands, it raises a question that is uncomfortable to ask directly. The lack of a transmitted opinion could mean either that the legal analysis is still unfinished, or that the opinion exists internally but has not yet been shared with Congress. That distinction matters for judging the administration’s legal position. Cadenazzi’s testimony did not resolve which of those is true. He confirmed that the Office of General Counsel had been consulted on the MP Materials deal and that he would push for opinions to be sent to Congress. But he acknowledged that legal analysis was still being done. He said the timeline for sending it was uncertain.
It is unusual for the Pentagon to leave such a clear gap in its own legal analysis, especially on something this new. When Chairman Roger Wicker, a Mississippi Republican, pressed Cadenazzi about how much longer the general counsel’s opinion would take, the administrator admitted that the timeline was uncertain.
Wicker, to be clear, is not against the equity investment strategy. He has backed limited use of equity stakes, especially in cases where, as he put it, “no free market exists.” The critical minerals situation arguably fits that description. But even Wicker, a Republican chairman on a Republican committee, wanted the legal foundation documented before more money was committed.
Why the TARP Precedent Does Not Apply
Federal equity stakes in private companies have precedents stretching back decades. The Reconstruction Finance Corporation took such positions in the 1930s, and the federal government did the same in the Continental Illinois Bank bailout of 1984 — the nearest parallel action before the Troubled Asset Relief Program, passed in 2008 during the financial crisis. The government took significant ownership stakes in General Motors, Chrysler, Citigroup, and AIG as part of emergency steps to prevent the financial system from collapsing.
But TARP had something the current Pentagon equity proposal does not: explicit Congressional authorization. When Congress passed the Emergency Economic Stabilization Act in October 2008, it clearly gave the Treasury Secretary authority to purchase troubled assets from financial institutions. That included the authority to take “such equity positions.as it deems appropriate to minimize losses to the Federal Government.” Congress said it plainly. There was no doubt about whether the statute permitted equity stakes.
General Motors was hours from bankruptcy. AIG was insolvent. The government was not investing in those companies because it thought they were good long-term business opportunities. It was rescuing them because their failure would have had ripple effects across the entire economy. The legal justification rested on emergency necessity alongside statutory authority.
MP Materials and L3Harris are not struggling companies. MP Materials is a working commercial enterprise. L3Harris is one of the largest defense contractors in the world, with billions in annual revenues. Neither company is facing bankruptcy. Neither needs government rescue to prevent an economic catastrophe. The Pentagon is investing in them to speed up capacity expansion and align corporate incentives with national security priorities. That is a different thing entirely, and courts would treat it differently.
There are, however, precedents that favor the administration and that any balanced legal assessment must address. In-Q-Tel, established in 1999 at the CIA’s initiative, is a federally funded nonprofit that takes equity stakes in private technology companies to build up capabilities relevant to the intelligence community. It has done so for more than two decades, and its equity-taking authority has not been successfully challenged in court. The Small Business Investment Company program is licensed and regulated by the Small Business Administration, but SBICs are privately owned and managed funds that take ownership positions in firms using capital backed by SBA-guaranteed debentures. Supporters of the Pentagon’s approach would argue that these structures show a well-established executive practice of using equity as a national security financing tool. They would add that what is new here is the scale and visibility, not the legal type. The counterargument is that In-Q-Tel operates through a nonprofit go-between rather than as a direct government equity holder. SBIC investments are explicitly authorized by the Small Business Investment Act of 1958. Those distinctions matter: neither example involves the executive branch directly holding equity in a private company on the basis of a broad national security statute alone. Whether those distinctions are legally decisive is exactly the question the missing general counsel opinion should answer.
If the government takes equity in a healthy, working private company as part of a commercial strategy to secure future returns for taxpayers, courts will be far more doubtful of executive authority claims. Courts applying the major questions doctrine would likely treat this as the kind of economically significant decision requiring clear Congressional authorization. That is the kind of clear statement that TARP provided explicitly. Title III, as currently written, does not provide it.
How Canada and Australia Are Handling Critical Minerals Investment
Canada and Australia face similar supply chain vulnerabilities and have been trying out government investment in critical minerals. On November 1, 2025 (though dated October 30, 2025), the two countries signed a Joint Declaration of Intent on critical minerals cooperation, committing to co-investment and blended financing mechanisms in critical minerals projects. For Canada, the declaration remains a forward-looking commitment rather than a running program.
But both countries clearly stated that the arrangements would be “subject to the availability of appropriated funds and respective domestic laws and regulations.” They were committing to work within their constitutional frameworks. They were not arguing that existing laws quietly authorized what they wanted to do.
The intended model, at least in Australia’s case: get clear authorization from the legislature, structure the investments with explicit governance frameworks, and make the financial and policy rationale openly available to the public.
What Congress Is Considering
The February 24 hearing was the start of a broader Congressional effort to set rules for an executive practice that was already underway.
The legislative options being discussed include a new statute that would clearly authorize the Pentagon or other agencies to take equity stakes in companies deemed critical to national security. Such a statute would include built-in oversight mechanisms, limits on board representation, and requirements for Congressional notice and approval above certain dollar thresholds. Alternatively, Congress could change Defense Production Act Title III to clearly permit equity investment. That change would include detailed conditions about when and how it can be used. Congress is actively weighing legislation to cover these mineral deals, and the conversation is bipartisan.
A more pressing concern has received less attention: what happens to the companies themselves if the legal foundation falls apart? If courts later rule that the Pentagon lacked authority to take these equity stakes, the ownership positions would presumably be invalidated. Private investors considering whether to buy into MP Materials or the L3Harris spin-off would have to weigh the possibility that the government’s equity position might not have clear legal standing. That position is the largest and most strategically significant ownership stake. That is not a small concern for a company trying to raise capital in public markets.
The administration is betting on one of three outcomes: Congress will authorize the practice explicitly, settling the legal question; courts will defer to executive national security judgment; or the political consequences of invalidating the program will be too great for courts to bear. None of those outcomes is guaranteed. The Supreme Court’s recent track record on the major questions doctrine suggests the third option is less reliable than it once was.
The general counsel’s opinion, when it finally arrives, will either clearly lay out a constitutional and statutory basis for equity stakes in mining companies, or it will hedge so carefully that it fails to resolve the questions Congress is raising. Either way, it will tell us something important about how confident the Pentagon’s own lawyers are. That document, whenever it appears, is the next thing to watch.
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