* Lawmaker demands documents on rare earth deal

* Questions conflicts of interest, Cantor involvement

* Seeks details on Commerce's funding authority

By Jarrett Renshaw, Ernest Scheyder and Gram Slattery

WASHINGTON, March 20 (Reuters) - A senior House Democrat

accused U.S. Commerce Secretary Howard Lutnick on Thursday of

structuring Washington's $1.58 billion investment into USA Rare

Earth ( USAR ) in a way that gives the government "highly

concerning" leverage over the company while boosting Lutnick's

family-run investment firm.

In a 10-page letter, Representative Zoe Lofgren, the ranking

member of the House Committee on Science, Space, and Technology,

wrote that the proposed deal would let the Commerce Department

keep an equity stake even if it decides not to invest while also

leaving the company reliant on a $1.5 billion private capital

raise led by Cantor Fitzgerald, the financial firm

previously led by Lutnick and now run by his sons.

"This deal creates a massive personal conflict by granting

the Secretary of Commerce overwhelming leverage to influence the

behavior of a private company while positioning him to promote

the interests of his sons as a condition of his support," wrote

Lofgren, a California Democrat.

The letter offers a glimpse into the types of investigations

Democrats could pursue if they regain power in Washington after

the November midterm elections, as lawmakers scrutinize the

administration's aggressive use of federal financing and equity

stakes to reshape supply chains for critical minerals and other

strategic industries.

CEO Barbara Humpton and a spokesperson for USA Rare Earth ( USAR )

were not immediately available to comment. The Commerce

Department did not immediately respond to requests for comment.

FUNDING IN EXCHANGE FOR EQUITY STAKE

The Commerce Department's CHIPS Program Office in January

signed a non-binding letter of intent to provide up to $1.58

billion in funding to USA Rare Earth ( USAR ) - including a $277 million

grant and a $1.3 billion loan - in exchange for an equity stake

of between 8% and 16%.

The funds are slated to help the company develop a mine in

Sierra Blanca, Texas, slated to open by 2028, and a magnet

manufacturing plant in Stillwater, Oklahoma, which ​is expected

to open this year.

According to the company's regulatory filings, the

government could retain its equity stake even if the deal falls

through or if funding is clawed back, a provision Lofgren called

"deeply strange" for a federal investment.

The company must meet a series of milestones to receive the

funding, including raising additional private capital,

completing technical studies and demonstrating market demand for

its manufacturing plans, according to the filing.

Lofgren argues those conditions could leave the company

dependent on the discretion of Commerce officials and create the

potential for undue influence, especially given that the private

capital raise from Cantor Fitzgerald is a condition for

finalizing the government investment.

"The interplay between the company's vulnerability and your

personal conflict is a glaring red flag," Lofgren wrote.

The lawmaker also questioned whether the Commerce Department

has legal authority to take equity stakes in companies under the

CHIPS and Science Act, arguing that the law's "other

transaction" authority does not allow government stakes in

private firms.

The Trump administration has used similar structures to take

equity positions in a range of companies, arguing the

investments are needed to strengthen domestic supply chains and

national security.

Lofgren asked the department to provide the committee with

documents tied to the deal's negotiation by April 3.

Reuters reported in January that a U.S. Senate committee is

separately reviewing at least one other equity deal in the

critical minerals sector.