Trump’s wealthy Cabinet picks will have to divest. But the rules make that a potentially lucrative prospect

Analysis by Allison Morrow, CNN

New York (CNN) — Moving from a Wall Street corner office to a DC corner office comes at a cost: For a top financier who’s been asked to run the Treasury Department, say, you could be looking at a pay cut of tens of millions of dollars a year. On top of that, you’d have to offload any stock holdings that create a potential conflict of interest with the new gig.

But cry not for the titans of industry who deign to take on government work. The way the rules are set up — largely unchanged from their Nixon-era origins — ensure that the many one-percenters who are vying to join the next administration are going to be just fine if confirmed, and possibly even richer than when they came in.

See here: President-elect Donald Trump is assembling what is likely to be the wealthiest Cabinet in US history, with at least two known billionaires — financier Howard Lutnick as Commerce secretary and former pro-wrestling executive Linda McMahon as Education secretary — and many others who are multimillionaires with complex financial holdings.

Federal ethics laws require those senior government jobs in the Cabinet and beyond to divest their individual stock holdings, lest anyone be tempted to abuse their position of power to juice their personal investments.

“The rule of thumb is, recuse or divest,” said Jordan Libowitz, vice president for communications at Citizens for Responsibility and Ethics in Washington, or CREW. “The more complex your assets are, the harder it can be to divest from them. But just because you’re outrageously rich with complicated assets doesn’t mean you get a special set of rules.”

Hedge fund headaches

The complication arises in part because the Nixon-era conflict of interest laws were created decades before the rise of private equity and other alternative investments that now make up sizable chunks of some portfolios.

That may be especially applicable for folks like Scott Bessent, a longtime hedge fund manager and Trump’s pick for Treasury secretary, a role that advises the president on a wide array of economic and fiscal matters, including spending and taxes.

While the details of his personal wealth haven’t been made public — Bessent doesn’t appear on billionaire lists maintained by Forbes or Bloomberg — he, like all Cabinet appointees, would have to submit a financial disclosure report for review by the Office of Government Ethics, which helps identify and resolve potential conflicts of interest in his portfolio. His hedge fund, Key Square Capital Management, didn’t respond to a request for comment about Bessent’s wealth or plans for divestiture.

Lutnick has already announced plans to step down from his role as CEO of financial services giant Cantor Fitzgerald and intends to divest his interests in Cantor’s publicly traded units, brokerage BGC and commercial real estate group Newmark.

But “divest” can mean a lot of things, including selling the assets, putting them in a trust or even gifting them to a family member. Lutnick offered few details about his plans but noted he doesn’t expect to sell shares on the open market, which could ding the value of the stocks.

“As long as you transfer ownership to a non-attributed person, it’s a divestiture, even if it’s not a sale in the open market,” Robert Rizzi, a tax attorney at law firm Holland & Knight in Washington, DC, told me. “Non-attributed” could still include adult children, siblings and parents, though not spouses or children who are minors, he notes.

Although the president isn’t subject to conflict of interest laws, most presidents have adhered to them anyway to avoid any appearance of impropriety. But when Trump came under pressure ahead of his inauguration in 2017 to disentangle himself from his vast real estate holdings, he refused to sell. Instead, he put his assets in a trust for his adult children. (While that technically counts as divesting, a group of plaintiffs led by CREW sued Trump for what they said were violations of a constitutional provision called the Emoluments Clause, which bars the president from accepting gifts from foreign governments without the permission of Congress. The Supreme Court eventually dismissed the case because Trump was no longer in office.)

Offloading assets isn’t always easy, especially for Wall Street types whose holdings in areas like private equity funds or private companies are illiquid, said Rizzi, who advises people pursuing executive branch positions.

“Part of the problem with these divestitures is … that the original legislation was written as a response to Watergate, before private equity funds even existed, and there are lots of financial products or investment alternatives that didn’t exist back then,” Rizzi said.

Another prominent hedge fund manager, John Paulson, an early contender for Treasury who had been in Trump’s orbit, dropped out of the running shortly after the election, saying that his “complex financial obligations” prevented him from holding an official position in the administration.

Easy money

For the past three decades, prospective government officials have benefited from a giant tax break designed to remove a major hurdle for private sector leaders to participate in public service.

With a “certificate of divestiture” granted by the Office of Government Ethics, a nominee can sell their stocks and stash the proceeds in a “permitted property” like US Treasuries or a diversified mutual fund. By doing this, a nominee can side step a massive capital gains tax they would otherwise pay on a stock sale.

“If you’re not married to your assets, it can actually be quite fortuitous to use this program,” Libowitz told me.

Back in 2006, George W. Bush’s Treasury Secretary Hank Paulson was compelled to sell his nearly $500 million stake in Goldman Sachs, the Wall Street banking behemoth where he’d been CEO. But with the divestiture protection, it proved to be a very smart play. Two years after taking office, Goldman’s stock cratered and the bank nearly went bankrupt in the Great Financial Crisis of 2008.

It’s worth underscoring that neither Trump nor his wealthy No. 2, Vice President-elect JD Vance, are subject to conflict of interest rules because they are not technically government employees. And while Trump faced criticism in his first term for not following the precedent set by his predecessors, he’s made clear he doesn’t intend to distance himself from any of his assets, which have grown considerably in recent years to include crypto stocks and a majority stake in his own social media platform.

“I HAVE NO INTENTION OF SELLING,” he wrote in a recent Truth Social post, referring to shares of Trump Media and Technology Group.

Given Trump’s own disregard for ethics rules, it’s not clear how, or even whether, his Justice Department would enforce the criminal conflict of interest laws that his Cabinet picks are subject to. If a department leader were to refuse to divest or recuse themselves in compliance with the laws, the Office of Government Ethics, which is part of the executive branch, could refer the issue to Justice, Libowitz said.

“I have been getting questions of, ‘if Trump fills everything with loyalists, would they actually follow the law?’” he said. “That’s a kind of scary question to ask. But the law, as it is, is that you can be investigated by the FBI for criminal conflicts of interest.”

The Trump transition team didn’t immediately respond to a request for comment.

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