Fannie Mae – Judge To Treasury: Turn Over All Discovery Documents

Fannie Mae – Judge To Treasury: Turn Over All Discovery Documents

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Fannie Mae – Judge To Treasury: Turn Over All Discovery Documents by Investors Unite

The federal judge overseeing the Fairholme case ruled last week that the U.S. Treasury must release all documents it has concerning the conservatorship of Fannie Mae and Freddie Mac. The ruling from Judge Margaret Sweeney grants a motion filed by Fairholme’s attorneys to force the government to stop withholding documents it claims are protected under privilege or because the contents could impact the markets.

Fairholme’s attorneys have argued that the government is deliberately stonewalling, making it more difficult to get a true understanding of the events and decisions leading up to the Third Amendment Sweep.

HousingWire had a good write-up on this ruling, quoting Rafferty Capital Markets analyst Richard Bove saying it’s a “big win” for the plaintiffs. The article also quoted an earlier ruling from Judge Sweeney that seemed to hint at this ruling:

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‘”The evidence needed by plaintiffs to respond to defendant’s jurisdictional allegations is within the hands of defendant, and otherwise not publicly available,’ Sweeney wrote earlier this year. ‘Thus, plaintiffs are entitled to discovery on this issue.’

“‘Therefore, in light of the parties’ dispute over jurisdictional facts and plaintiffs’ apparent lack of sufficient evidence to respond to defendant’s motion to dismiss, plaintiffs are entitled to conduct discovery in order to meet their burden of presenting the proof necessary to establish this court’s jurisdiction.’”

This is a significant ruling that shows Judge Sweeney sees the government telling different courts different things – her court of Federal Claims and Judge Royce Lamberth in the District Court for D.C.

In practical terms, the ruling means Fairholme’s attorneys can bring all of the protected information currently under seal – more than 10,000 pages worth of depositions, documents and whatever else falls under the discovery terms – into the D.C. Circuit without having to keep going back to the judge for decisions on individual components. An excellent Huffington Post piece by editor and publisher Harlan Green says this will finally let shareholders “untangle” what occurred from 2008 to 2012. Noting that the funds the enterprises received have been “paid back in spades and the GSEs are not being allowed to recapitalize,” Green’s post is accompanied by a “Largest Taking In History … And Still Going!” graph, which you really should go check out.

We’re still waiting to see how Judge Sweeney will rule on a motion submitted recently by the New York Times calling for the “protected information” removed from depositions from Edward DeMarco, head of the Federal Housing Finance Agency when the Third Amendment took effect, and Mario Ugoletti, a Treasury official who oversaw the agency’s policy toward the GSEs at the time of the conservatorship and who moved over to FHFA as a Special Advisor to DeMarco.

Ugoletti has said that he played a key role in creating the Preferred Stock Purchase Agreements, which were later amended to become the Sweep. And while it’s not unusual for officials with specific knowledge or experience to move within or between agencies, in this situation, Ugoletti’s moves and statements raise questions as to whether he was acting independently at FHFA, as required of a conservator, or serving as an unofficial agent on behalf of the Treasury.

In the motion, the New York Times asserts its right to intervene in the discovery process as a news organization on behalf of the public, and states that the government has failed to show good cause for the continued confidentiality of the documents. From the motion, with emphasis added:

“The public’s interest in the underlying facts of this case is undeniable … The case directly addresses how the Government is going about recouping public funds used in the bailout and whether other investors are being treated lawfully. The Government should not be able to hide from the public – voters and taxpayers – the facts that were central to the decisions that the Government made as part of the far-reaching effort to safeguard the U.S. economy. To the contrary, access to the evidence will enable the public to understand more fully the decisions the Government has made in the public’s name and to assess the wisdom and effect of those decisions.

“Good cause for continued confidentiality has not been shown here as to the Transcripts. As an initial matter, there is no indication that the Government has even attempted to articulate good cause for the confidentiality, and it cannot avoid its obligation to do so, despite the fact that the protective order currently exists.”

Ugoletti’s interagency communications bear additional scrutiny and documents related to this must be made public. We hope Judge Sweeney rules in favor of this motion as well. After all, the taxpayers who generously bailed out Fannie Mae and Freddie Mac and the shareholders who had their private property seized by their own government deserve to know the truth.

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