Democratic Senators Probe Conflict of Interest in USA Rare Earth's Government Funding Deal

What happened

Democratic senators have raised conflict of interest concerns over Cantor Fitzgerald's role in brokering a fundraising round for USA Rare Earth, which was necessary to secure Commerce Department funding. This scrutiny targets the integrity of the funding process that USAR depends on for its $1.6B government letter of intent (LOI), a key element in its pre-revenue 'mine-to-magnet' strategy. According to the DeepValue report, USAR has no committed customers and faces going-concern doubts, making the LOI conversion into definitive agreements by March 31, 2026, a binary valuation driver. Any delay or complication in finalizing funding could jeopardize operational milestones like Stillwater commissioning in Q1 2026, as highlighted in the report's risk assessment. Thus, the senators' probe introduces regulatory uncertainty that amplifies the existing execution risks documented in filings.

Implication

The senators' intervention may slow the approval and finalization of the $1.6B LOI, introducing timing uncertainty that could compress valuation. This aligns with the DeepValue report's bear case, where funding delays might push implied value towards $12, given USAR's pre-revenue status and going-concern warning. Any funding hiccup could force additional equity raises at unfavorable terms, exacerbating dilution risks already cited in the report. Investors should closely monitor for updates on the LOI by the March 31 deadline, as per the report's 90-day checkpoints, to assess thesis validity. Overall, this news underscores the fragility of USAR's policy-dependent thesis and the need for robust due diligence on funding integrity amid heightened scrutiny.

Thesis delta

The conflict of interest concerns add a new regulatory dimension to the investment thesis, increasing the risk profile of the government funding catalyst. While the core thesis still hinges on LOI conversion and commissioning milestones, this development raises the likelihood of delays or additional scrutiny, potentially shifting probability weight towards the bear scenario where valuation compresses. Investors should factor in heightened uncertainty and prepare for possible volatility around funding announcements, without altering the fundamental pre-revenue operational risks.