Google’s ex-CEO Eric Schmidt ran for a federal fee on biotechnology that may enable members to maintain investments

On December 30, leaders of the House and Senate Armed Services Committees announced the selection of former Google CEO Eric Schmidt and 11 others to serve on a new federal commission on biotechnology.

The National Security Commission on Emerging Biotechnology, tasked with scrutinizing the biotech industry and proposing investments that would benefit U.S. security, is expected to have a prominent voice on policy and federal spending in the cutting-edge industry.

However, the appointment does not require commissioners to divest their own personal biotech investments — even as they help shape U.S. policy by overseeing the industry. Schmidt has interests in several biotech companies through a venture capital firm called First Spark Ventures, which positions him 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 named, told CNBC on Jan. 19 that he is not involved in selecting or overseeing federal investments in the sector and that he is not involved in decision-making about First Participating is Spark’s investment. The person also said they would comply with all disclosure rules.

Then, on Jan. 25, after a series of emails and conversations with CNBC about the possible conflict of interest, the person said Schmidt would donate 100 percent of the “net profits” from his investment in First Spark to charity. The person did not say when Schmidt made the decision to donate profits, adding that he has not yet named recipient charities.

Due to the nature of venture capital investments, it can take years for a company to be sold or taken public.

“This is a potential horror show,” Walter Shaub, the former director of the US Office of Government Ethics, said of the new commission. “Congress established this commission without proper safeguards against conflicts of interest.”

Shaub, an attorney who is now a senior ethics fellow with the nonpartisan nonprofit Project on Government Oversight, said members of the commission are exempt from criminal conflict of interest laws that could otherwise require them to self-retire or divest certain holdings because they were established by Congress and not the Executive Branch.

“These are individuals who will help shape federal policy at the intersection of biotechnology and national security, and will 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 not have a way to assess how their financial interests affect their recommendations.”

A spokesman 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 abide by government ethics rules.

“Every member of this commission must comply with all government ethics guidelines,” the spokesman said. “The Commission itself is designed to prevent undue influence, and Congress will closely monitor the work of the Commission.”

The new chairman of the commission, Dr. Jason Kelly, has no plans to step down as CEO of Boston-based biotech company Ginkgo Bioworks, which specializes in genetic engineering.

“Jason serves this commission in his personal capacity,” said Joseph Fridman, an executive at Ginkgo Bioworks. He didn’t elaborate on whether Kelly planned to divest potential stakes in the company as well. “I would also like to note that at Ginkgo in general, we take regular action to maintain our position as a trusted partner of the US government.”

Schmidt’s decision to donate his winnings “reaffirms that he’s volunteering for these roles for the right reasons,” said the person familiar with his mindset. “The main purpose is philanthropy,” the person said.

But Shaub said if Schmidt donated First Spark’s net profits to charity, it wouldn’t go far enough to address the issue. “To say he will donate all profits doesn’t change anything,” he said. “Either you have a financial interest in your government work or you don’t.”

The Pentagon is already heavily invested in the biotechnology sector. In September, for example, the White House announced that the Department of Defense will invest $1 billion over five years in bioindustrial domestic manufacturing infrastructure to help develop the US manufacturing base. The new federal commission is likely to have a say in how such investments are steered during its two-year existence.

It is not the first time that Schmidt has served on an influential Washington commission. In October, CNBC reported that Schmidt and his affiliates made more than 50 investments in artificial intelligence companies while he chaired a federal commission on AI from 2018 to 2021. There was no indication that Schmidt violated ethical rules or did anything illegal while leading the commission. And CNBC is not aware of any instances where Schmidt has abused his position on the previous commission for personal financial gain.

Still, at the time, Shaub called Schmidt’s AI arrangement “absolutely a conflict of interest” and said it was “not the right thing to do.”

Schmidt’s biotech investments are relatively new. Schmidt, who serves as a strategic advisor and non-executive partner, co-founded First Spark in 2021. The company’s investments are heavily focused in the biotech sector: in leading-edge companies like Walking Fish Technologies, which focuses on cell engineering; Vitara Biomedical, a neonatal care company; and Valitor, which specializes in protein-based drug therapies. Representatives from the three companies did not respond to requests for comment.

CNBC tried to reach First Spark officials via LinkedIn for comment, but received no response. The law firm’s website does not provide a phone number or email address.

CNBC attempted to reach out to the other members of the commission to determine how they would manage potential conflicts of interest. A spokesman for Rep. Ro Khanna, who was appointed to the commission, said the congressman does not own individual shares and his wife’s assets are held in a diversified trust managed by an outside financial advisor. “Qualified diversified trusts eliminate conflict and are therefore an appropriate vehicle to protect against potential conflict,” Khanna’s spokesman said.

Dawn Meyerriecks, the former CIA associate director for science and technology who will serve on the commission, told CNBC she has no personal investments in the biotech space.

“As you know, the commission is not fully established,” she said in a message via LinkedIn. “All Commissioners will submit all disclosure forms required to serve on the Commission and will work with the Government Ethics Adviser to consider any potential conflicts based on the expected work of the Commission.”