Tasked with reviewing the biotech industry and suggesting investments that would benefit U.S. security, the National Security Commission on Emerging Biotechnology is expected to have a prominent voice on policy and federal spending in the cutting-edge industry.
The appointment, however, doesn’t require commission members to divest their own personal biotech investments — even as they help shape U.S. policy overseeing the industry. Through a venture capital firm known as First Spark Ventures, Schmidt holds stakes in several biotech companies, placing him in a position to potentially profit if those companies are the beneficiaries of a new wave of federal biotech spending.
A person familiar with Schmidt’s thinking, who asked not to be identified, told CNBC on Jan. 19 that he wouldn’t be involved in selecting or monitoring any federal investments in the sector and that he isn’t involved in decision-making about First Spark’s investments. The person also said he would comply with all disclosure rules.
Then, on Jan. 25, after a series of emails and conversations with CNBC about the potential conflict of interest, the person said Schmidt will donate 100 percent of the “net profits” from his investment in First Spark to charity. The person didn’t say when Schmidt made the decision to donate profits, adding that he hasn’t yet named any recipient charities.
Due to the nature of venture capital investments, it could take years before a company is sold or goes public.
“This is a potential horror show,” Walter Shaub, the former director of the U.S. Office of Government Ethics, said of the new commission. “Congress created this commission without adequate safeguards against conflicts of interest.”
Shaub, an attorney who’s now a senior ethics fellow at the nonpartisan nonprofit Project on Government Oversight, said members of the commission are exempt from criminal conflict of interest laws that might otherwise require them to recuse themselves or divest certain holdings because it was set up by Congress and not the executive branch.
“These are individuals who are going to be helping to shape federal policy on the intersection of biotechnology and national security, and it’ll be legal for them to make recommendations that benefit their own personal financial interests,” Shaub said. “Because much of the work could be classified, the public may have no way to gauge how their financial interests are influencing their recommendations.”
A spokesperson for the Senate Armed Services Committee, which will oversee the commission, said Schmidt and other members were selected by bipartisan leaders in the House and Senate and are expected to follow government ethics rules.
“Every member on this commission is required to adhere to all government ethics policies,” the spokesperson said. “The commission itself is designed to prevent undue influence, and Congress will provide careful oversight throughout the commission’s work.”
The commission’s incoming chairman, Dr. Jason Kelly, doesn’t plan to relinquish his role as CEO of Boston biotech company Ginkgo Bioworks, which specializes in genetic engineering.
“Jason is serving on this commission in his personal capacity,” said Joseph Fridman, an executive at Ginkgo Bioworks. He didn’t address whether Kelly planned to divest any potential equity in the company as well. “I’ll also note that, in general, we regularly implement measures at Ginkgo to maintain our position as a trusted partner of the U.S. government.”
Schmidt’s decision to donate his profits “reinforce(s) that he volunteers for these roles for all the right reasons,” said the person familiar with his thinking. “The primary purpose is philanthropy,” the person said.
But Shaub said if Schmidt were to give the First Spark net profits to charity that it wouldn’t go far enough to address the problem. “Saying he’ll donate any profits changes nothing,” he said. “You either have a financial interest in the government work you’re doing or you don’t.”
The Pentagon is already deeply invested in the biotechnology sector. In September, for example, the White House announced that the Department of Defense will invest $1 billion in bioindustrial domestic manufacturing infrastructure over five years to spur development of the U.S. manufacturing base. The new federal commission will likely have a say in steering such investments over the two years of its lifetime.
This is not the first time Schmidt has participated in an influential Washington commission. In October, CNBC reported that Schmidt and entities connected to him made more than 50 investments in artificial intelligence companies while he was chair of a federal commission on AI from 2018 to 2021. There was no indication that Schmidt broke any ethics rules or did anything unlawful while chairing the commission. And CNBC is unaware of any instance in which Schmidt abused his position on the earlier commission for personal financial gain.
Still, at the time, Shaub called Schmidt’s AI arrangement “absolutely a conflict of interest,” and said that it was “not the right thing to do.”
Schmidt’s biotech investments are relatively recent. Schmidt, who serves as a strategic advisor and nonmanaging partner, was a co-founder of First Spark in 2021. The firm’s investments are heavily concentrated in the biotech sector: in cutting-edge companies like Walking Fish Technologies, which focuses on cell engineering; Vitara Biomedical, a neonatal-care enterprise; and Valitor, which specializes in protein-based drug therapies. Representatives of the three companies did not respond to requests for comment.
CNBC attempted to reach First Spark officials through LinkedIn for comment, but did not receive a response. The firm’s website does not offer a telephone number or email address.
CNBC attempted to reach the other members of the commission to determine how they would handle potential conflict of interest issues. A spokesman for Rep. Ro Khanna, who was named to the commission, said the congressman does not own any individual stocks, and his wife’s assets are in a diversified trust managed by an outside financial advisor. “Qualified diversified trusts eliminate conflicts and are therefore an appropriate vehicle to safeguard against any potential conflicts,” Khanna’s spokesperson said.
Dawn Meyerriecks, the former deputy director of the CIA for Science and Technology who will serve on the commission, told CNBC she does not have any personal investments in the biotech space.
“As you know, the Commission is not yet fully set up,” she said in a message via LinkedIn. “All the commissioners will file all disclosure forms that are required for service on the commission and work with government ethics counsel to consider any potential conflicts based on the expected work of the Commission. “