By Chuck Gallagher — Business Ethics Keynote Speaker and Trainer
TL;DR: Chuck Gallagher, business ethics keynote speaker at ChuckGallagher.com, examines an Army under secretary’s IPO-day purchase of SpaceX stock and separates three questions most people collapse into one: was it illegal, did it violate government ethics rules, and does it pass the smell test.
What Actually Happened on IPO Day?
On June 12, 2026, SpaceX went public. Elon Musk became the world’s first trillionaire before most of us finished our coffee. Among the buyers that day was Michael Obadal, Under Secretary of the Army. He picked up between $1,001 and $15,000 in SpaceX stock through a Charles Schwab retail account, the same way your neighbor might. Then he reported it on a financial disclosure with the Office of Government Ethics, exactly as the rules told him to.
SpaceX does billions of dollars in business with the Department of Defense. In May 2026, one month before the offering, the company won a $4.16 billion Space Force contract. The Army says SpaceX holds no Army contracts. An Army spokesman, Maj. Pete Nguyen, said the under secretary has had no contact with SpaceX or its people and is in full compliance with all federal ethics rules.
So we have three questions. Is it illegal? Is it unethical under the government’s own rules? Does it pass the smell test? Three questions, three different answers. Most people mash them into one. That is where the thinking goes wrong.
Is Buying the Stock a Crime?
No. Not on these facts.
The criminal conflict-of-interest statute is 18 U.S.C. Section 208. Read it slowly and you will notice it does not prohibit owning anything. It prohibits participating, personally and substantially, in a particular matter that would affect a financial interest you know you hold. Ownership is not the offense. Working the file while you own the stock is the offense.
As a business ethics keynote speaker, I have watched executives and public officials misread that distinction for twenty years. They hear the phrase conflict of interest law and assume it means you cannot own it. It does not. It means you cannot touch the decision.
And even if an Army matter did land on his desk, federal regulation carves out a safe harbor. Under 5 CFR Section 2640.202, an employee may work on a specific-party matter while holding publicly traded stock in an affected company, so long as combined family holdings stay under $15,000. Obadal’s disclosed range tops out at exactly $15,000. The Army called the value well below that ceiling. It might be. It might also be sitting right on it. Disclosure ranges do not tell you. That vagueness is a design choice.
Do the Ethics Rules Actually Prohibit It?
Also no. That one surprises people, so stay with me.
The Defense Department has its own supplemental ethics regulation at 5 CFR Part 3601. It requires senior filers to clear outside business activities in advance. But the regulation expressly excludes a routine commercial transaction or the purchase of an asset or interest, such as common stock, that is available to the general public. An IPO purchase through a retail brokerage is precisely that. No pre-clearance. No permission slip. No rule broken.
Which brings us to the standard nobody enforces. Under 5 CFR Section 2635.101(b)(14), federal employees shall endeavor to avoid any actions creating the appearance that they are violating ethical standards, judged from the perspective of a reasonable person who knows the relevant facts. That is a real obligation on paper. In practice, the word endeavor carries an awful lot of freight. No penalty attached. No referral. No process. It reads like a rule and functions like a suggestion.
So Does It Pass the Smell Test?
Here is where it gets uncomfortable.
Obadal did not walk into this job with a clean slate on this exact subject. He spent his 2025 confirmation fighting about defense contractor equity. He came out of Anduril Industries holding between $250,000 and $500,000 in company stock. His April 2025 ethics disclosure said he intended to keep it. Senator Elizabeth Warren called that a textbook conflict of interest and told him to sell. Richard Painter, chief White House ethics lawyer under George W. Bush, called that unheard of for a Pentagon appointee. Obadal eventually agreed to shed it. The Senate confirmed him 51 to 47. He was sworn in on September 22, 2025.
Nine months later he bought into a different defense contractor on the biggest IPO day of the year. Read that sentence again.
Nothing illegal happened. No written rule was broken. But a reasonable person who knows the relevant facts, which is the actual regulatory test, reads that sequence and forms an opinion anyway. Dylan Hedtler-Gaudette of the Project on Government Oversight said it plainly: it is ethically untenable for federal officials to be financially invested in companies doing business with their agencies. Full stop, he said. He meant it.
The smell test fails. Not because of the money. Fifteen thousand dollars is not a bribe, and anybody who calls it one is not being serious. It fails because of the sequence.
Where Do Need, Opportunity, and Rationalization Show Up?
What I do as a business ethics keynote speaker comes down to three conditions. Need. Opportunity. Rationalization. Line them up and misconduct follows. What makes this case worth studying is that all three sit in plain view even though nobody committed misconduct.
The need is not money. A man in that chair does not need fifteen thousand dollars. The need is the human pull of not being left out while the whole country piles into the biggest wealth event of the year. You know exactly what I mean.
The opportunity is structural. A retail brokerage account. A public offering open to everyone. No pre-clearance requirement. Disclosure reported in wide ranges instead of actual dollars.
And the rationalization is sitting right there in the official statement. He bought it the way any member of the public could. That is downright true. It is also the tell. Anyone could have done this steps neatly around the one fact that matters. Most people are not the second-ranking civilian official of a service branch inside the department writing the checks.
Every choice has a consequence. Sometimes the consequence is not a prosecution or a resignation. Sometimes it is a sergeant somewhere reading the news on his phone and quietly deciding the rules run different upstairs. That one never shows up in a compliance report. It is also the one you cannot undo.
Frequently Asked Questions
Is it illegal for a federal official to own stock in a defense contractor?
Generally no. The criminal conflict-of-interest statute, 18 U.S.C. Section 208, prohibits participating personally and substantially in a particular matter affecting a financial interest you know you hold. It does not prohibit ownership by itself. A handful of agencies impose stricter prohibited-holdings rules on their own employees, but the Defense Department’s supplemental regulation is not one of them.
What is the de minimis exemption for conflicts of interest?
Under 5 CFR Section 2640.202, an employee may work on a specific-party matter despite owning publicly traded securities in an affected company if the combined market value held by the employee, spouse, and minor children does not exceed $15,000. For matters of general applicability such as rulemaking, the ceiling rises to $25,000 per company and $50,000 across all affected companies. The exemption covers participation, not ownership.
Do Pentagon officials have to get approval before buying stock?
No. The Defense Department’s supplemental ethics regulation at 5 CFR Part 3601 requires prior approval for outside business activities, but it expressly excludes routine commercial transactions and purchases of assets such as common stock that are available to the general public. Buying shares through a retail brokerage account falls outside the approval requirement entirely.
What is the appearance standard in federal ethics rules?
5 CFR Section 2635.101(b)(14) directs employees to endeavor to avoid any actions creating the appearance that they are violating the law or ethical standards, measured from the perspective of a reasonable person with knowledge of the relevant facts. As a business ethics keynote speaker, I point out that the standard carries no enforcement mechanism. It describes a duty without creating a consequence, which is why conduct routinely clears the rules and still damages public trust.
Is Congress doing anything about officials trading stocks?
The House passed the Stop Insider Trading Act in July 2026, which would restrict individual stock purchases by lawmakers and their immediate family members. The bill awaits Senate action. Separate proposals to extend trading restrictions to senior executive branch officials have not gathered enough support to reach a vote.
Work With Chuck
Compliance answers one question: did anybody break a rule. Trust answers a harder one: would a reasonable person looking at the whole picture believe this decision was made for the right reasons. Organizations that measure only the first keep getting blindsided by the second. If your board, your leadership team, or your compliance function needs a candid conversation about the gap between what is permitted and what is defensible, that is the work I do. Start at ChuckGallagher.com.
Five Questions for Reflection
1. Where in our organization does someone hold a position where a technically permitted personal transaction would still look bad if it appeared in print tomorrow?
2. When our people ask whether something is allowed, do we treat that as the end of the analysis or the beginning of it?
3. What does our written policy say about appearance, and does anything actually happen when someone falls short of it?
4. Who on our team has already been through a public controversy about their own conduct, and have we checked whether the lesson stuck?
5. If a frontline employee watched a senior leader do this, what would they conclude about which rules apply to whom?
