Trump pick for Defense has close ties to major contractor

James Mattis ties to Theranos raises eyebrows
James Mattis ties to Theranos raises eyebrows

Ret. Gen. James Mattis, President-elect Donald Trump's pick for Defense secretary, has ties to General Dynamics that may raise conflict questions.

The retired Marine Corps former four-star general has received stock and option awards as a board member of General Dynamics since August 2013. In 2015, those equity awards exceeded $140,000 in value, and the prior year they topped $112,000. There's also cash compensation given to the board members.

To avoid conflicts, analysts say Mattis will likely be required to put any defense-related holdings in a blind trust or sell them outright. Moreover, he would want to guard against the appearance of conflicts and remove himself on any dealings involving the Virginia-based company.

"He would have to resign the board and do something about any holdings to avoid any conflicts of interest," Cowen analyst Roman Schweizer said Friday. "But that's pretty standard for anyone going into U.S. government, and would include any other defense-related holding in his case."

General Dynamics declined to comment. The Trump transition team did not immediately respond to CNBC requests for comment. Mattis could not be immediately located for comment through General Dynamics or through the Hoover Institution, where he has been a visiting fellow.

Experts say it's not unusual for high-level executives at defense companies to serve in senior positions in the Pentagon. They noted that that Mattis served in the military for some 44 years, retiring in 2013, and spent just a few years in the private sector at a defense contractor.

Candidate Trump pledged to add more ships, aircraft and troops to the military. Industry analysts have suggested that adding more active-duty troops in the Army and Marine Corps would be good news for munitions companies such as General Dynamics and Orbital ATK.

At the same time, the troop expansion is seen as positive for missile makers such as Boeing, Lockheed Martin and Raytheon.

Trump dropped mention of Mattis getting the Defense secretary job during remarks at a rally in Cincinnati on Thursday. Trump is expected to make the formal announcement on Monday.

"We are going to appoint 'Mad Dog' Mattis as our Secretary of Defense," Trump said at the Cincinnati rally. "He's great. He is great."

Cowen's Schweizer said he expects there's a likelihood that Marine Corps priorities under the retired four-star general could see "less opposition." He wrote in a note Friday that the service's priorities include everything from amphibious ships and the CH-53K heavy-lift helicopters manufactured by Lockheed Martin's Sikorsky unit to the V-22 tilt-rotor aircraft from Bell Boeing (a 50-50 joint venture of Textron and Boeing) and Lockheed's F-35B/C strike-fighters.

Mattis will need a waiver from Congress since federal rules require the Defense secretary to be a civilian for at least seven years.

"Simply put, Mattis is revered by many in the Marine Corps, DOD and Congress," the Cowen analyst said. "We expect Congress will amend the prohibition on former military officials serving as secretary of Defense within seven years of their retirement, and the Senate will quickly confirm him next year."

Meantime, Macquarie analyst Andrew DeGasperi wrote in a note Thursday that the selection of Mattis could lift demand for intelligence due to the former general's "views on re-engaging the U.S. Military globally."

Considered a hawk on Iran, Mattis gained the nickname "Mad Dog" due to his tough talk and battlefield experience. "Be polite, be professional, but have a plan to kill everybody you meet," he was once quoted as telling Marines in Iraq.

Mattis was commander of the U.S. Central Command for just under 1,000 days but ousted from the role in January 2013 by President Barack Obama reportedly due to policy differences on the nuclear deal with Iran. But the former general may not want to pull the plug entirely on the Iran agreement although he may push for changes, according to remarks he made in April.

Mattis served in several conflicts, including the Vietnam War, the first Gulf War as well as Iraq and Afghanistan.

In 2001, he commanded a Marine attack task force landing in Afghanistan right after 9/11. Two years later, Mattis was leading a Marine division to Baghdad and then moved on to some of the fiercest battles of the conflict during the 2004 Fallujah campaign.

Mattis also is a director of embattled blood-testing start-up Theranos, according to the company's website.