Democratic fundraiser, cyber-investor enjoys access to White House, Gore

Introduction

On May 5, 1999, Vice President Al Gore announced the creation of the Parents’ Protection Page, a White House sponsored web-site designed to help parents steer their children away from obscene material on the Internet. “With this new Parents’ Protection Page,” Gore said, “we will help ensure that children aren’t surfing into dangerous waters when they surf the web.”

“We are giving the computer keyboard back to those who know best – America’s parents,” he added. Gore’s efforts to empower America’s parents would be aided by The Learning Company and its “Cyber Patrol” filtering software, which was one of several such programs recommended on the White House’s new web-site.

In his speech, ironically, Gore had done some filtering of his own. He didn’t mention, for example, that The Learning Company was one of his biggest career patrons; employees of The Learning Company (and its parent, Mattel, Inc.) have given more than $75,000 to Gore’s political career. Furthermore, one of Mattel’s major investors had been the chairman of a White House committee that had advocated increased federal spending on education technology. That investor is David E. Shaw, one of the most significant, yet least known, donors to the Vice President’s presidential campaign.

The story of David E. Shaw and his political connections is as little known and as mystifying as his business – quantitative trading (see sidebar). Perhaps Shaw is such an anonymous figure – except within a limited pool of investment wonks on Wall Street – because of the envelope of silence that surrounds his company, D.E. Shaw & Co. Or perhaps it is due to his company’s esoteric work; a blend of math, computer science, and finance.

Whatever the explanation, Shaw and his close associates are among Al Gore’s largest political patrons. Because he tapped a network of employees and relatives with different last names than his own, Shaw has corralled large amounts of hard money for Gore’s campaign while remaining virtually unnoticed.

‘I just think it’s very unhealthy’

David Shaw’s involvement in Democratic politics began with meeting then-Governor Bill Clinton at a Manhattan gathering of the Democratic Leadership Council, a centrist Democratic organization that Clinton headed before he ran for President. “I was just very, very impressed with him,” Shaw told The Public i. “I thought he was just brilliant. So, I talked with him a little bit afterward and told him if he ever decided to run for President, that I hoped he would at least give me a call.” Clinton’s campaign did call, and by the time Clinton began running for President in 1991, Shaw was squarely behind him as both a fundraiser and an adviser.

Shaw was, and continues to be, a major donor to the Democratic National Committee and its associated committees, giving more than $700,000 in hard and soft money from January 1991 through December 1999. He also loaned the Presidential Inauguration Committee $100,000 in 1993. “I’m actually opposed to the soft money system,” Shaw said. “I just think it’s very unhealthy. Every time there’s a social function where a politician has to show up there and spend a couple hours I worry that he could be doing something more productive, related to the process of governing.”

Shaw’s support of Clinton won the Wall Street executive a seat on the President’s Committee of Advisors on Science and Technology (PCAST), a forum in which Shaw could more actively pursue his interest in public policy, especially the role of technology in education. As chairman of the PCAST Panel on Educational Technology, Shaw advocated increased federal spending for more technology in the classroom. In 1996, Shaw said that he spoke with the President every other month, and offered this assessment of Clinton: “The President is very much on top of the major science and technology issues. I think this president has a deeper understanding than past presidents on many of these matters.”

Shaw’s support for Clinton has extended to the Vice President, for whom Shaw is an important policy adviser and fundraiser. The relationship began as a spillover from Shaw’s appointment to PCAST. There, as chairman of the Panel on Educational Technology, he worked closely with the Vice President. “I met with the Vice President and his staff reasonably regularly and found that they were really smart,” Shaw said. “The Vice President and also the staff members go deeper than most people who I’ve met in government, in terms of trying to actually understand what the technical issues are.”

Shaw, along with Wall Street moguls such as George Soros and Steven Rattner, earned a breakfast date at the White House in August 1998 to discuss the global financial crisis with the Vice President. Shaw also told the Center that he had a one-on-one meeting with Gore in mid-1999 at the Vice President’s residence to discuss educational technology policy.

Besides offering moral and policy support, Shaw offers the lifeblood of all campaigns: cash. In addition to donating the maximum $2,000 to Gore’s presidential campaign and its associated compliance fund, Shaw has encouraged a wide-ranging network of friends, family, and business associates to give to the Gore campaign, and in the process has established himself as one of Gore’s top fundraisers (see sidebar tables). Shaw said of the fundraising, “My family shares my values. They actually sort of rely on my advice on [donating].”

Where money meets politics

D.E. Shaw & Co. is itself emblematic of the intermeshing of Shaw’s business interests with his role in politics and the Democratic Party. D.E. Shaw’s original investors included the Tisch family of New York (the family behind the Loews Corporation empire) and the Tisches’ in-law New York financier S. Donald Sussman, who are among the largest Democratic soft-money supporters over the past decade. The Tisch family and related business interests have given more than $56,000 to Al Gore over the course of his career, while also donating at least $755,000 in soft money to the Democratic Party over the course of the last decade. For his part, Sussman has given more than $400,000 in soft money to the Party.

As for PCAST, Shaw characterizes the advisory body as “very unpolitical.” An analysis of PCAST appointees’ political donations, however, shows that nearly half its members have financially supported Clinton, Gore, or Democratic Party committees.

But beyond Clinton’s habit of appointing Democratic donors to PCAST, Shaw’s chairmanship of PCAST’s Panel on Education Technology was a potentially self-serving position that offered Shaw the opportunity to shape public policy in a manner that would benefit his companies financially.

The Learning Company manufactures Internet filtering software called Cyber Patrol – recommended by the White House’s Parents’ Protection Page – which is meant to keep harmful images and text on the Internet away from minors. Mattel, Inc., the world’s largest toy manufacturer, acquired the Learning Company in March 1999. According to documents filed with the Securities and Exchange Commission, D.E. Shaw Investments, L.P, became Mattel’s third largest shareholder in early 1998. (Shaw told the Center that, because of the mechanism of his computerized arbitrage, he was unaware of his company’s stake in Mattel.)

Shaw has long been a supporter of increased technology in the classroom. In October 1997, nearly two years before Mattel bought The Learning Company, Shaw testified before the House Science Committee that more funding should go toward “learning with technology, not about technology. A large-scale program of rigorous, systematic research on education in general – and educational technology in particular – would ultimately prove necessary to ensure both the efficacy and cost-effectiveness of technology within our nation’s schools.” His PCAST Panel on Education Technology prepared a report for the President in early 1997 that recommended the nation’s schools, some of the largest users of filtering software, increase their spending on technology from nearly $4 billion to as much as $28 billion.

D.E. Shaw’s investment in Mattel was not a good one, however; the stock fell from a high of over $45 a share in March 1998 to below $10 for a time earlier this year. A Mattel spokesperson told The Public i that Shaw’s company is no longer a primary shareholder in the toy company.