Unsealed GSE Litigation Documents Show Government Claims in Filings Questionable At Best

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Mario Ugoletti in December 2013:

“At the time of the negotiation and execution of the Third Amendment, the Conservator and the Enterprises had not yet begun to discuss whether or when the Enterprises would be able to recognize any value to their deferred tax assets. Thus, neither the Conservator (FHFA) nor Treasury envisioned at the time of the third amendment that Fannie Mae’s valuation allowance on its deferred tax assets would be reversed in early 2013, resulting in a sudden and substantial increase in Fannie Mae’s net worth, which was paid to Treasury in mid-2013 by virtue of the net worth dividend.”

Ugoletti under deposition May 2015:

Q. Well, let me ask you: Did the conservator, on the eve of the Net Worth Sweep, envision that the deferred tax assets would be written back up in 2013?

A. As I just stated, I did not really think that this was a possibility anytime in the near future. And 2013, the early part of 2013 when this became an issue, it became an issue because, well,   house prices are continuing to go up and we’re going to take — release more loss reserves, and it looks like it’s more probable than not, which is a very low standard, more probable than not, that we’re going to  have to release the valuation allowance on the  deferred tax asset.

So that is when it really came home that this was a possibility.


Former FNMA CFO Susan McFarland’s unsealed deposition (parts below) reveals a gold mine of testimony. In it she lands body blows to the credibility of Ugoletti & Foster (depositions also included) who were vague, ridden with memory lapses and borderline uncooperative. McFarland is eager to tell her story and does so in very good detail. What she discloses is probably explains why Mario has been out of the country in Ecuador (no extradition to US) since he gave his statement in 2013 (he knew it to be false).

McFarland clearly has no interest in being a “good soldier” here and even in what we see below, is naming names.  Don’t think for a second that these folks have not been deposed also. You’ll also note that despite his starring role in earlier government filings, Ugoletti no longer seems to exist as he is curiously absent from current filings……perhaps even the government is admitting everyone knew about the DTA’s and that they were the reason for the NWS and not the reasons they have stated?

The full doc release is here. Note: please read them carefully, they are not the complete depositions (not all has been released) and even within them they skip sections. Also note that what your read below is only what is vanilla enough to be released (for now). This is by no means “all there is”.


Q. (BY MR. THOMPSON) But I would — this is, as Counsel quite rightly notes, a memo from December 20, 2010. It’s from a Jeffrey Goldstein. The subject is, “Periodic Commitment Fee for GSE Preferred Stock Purchase Agreements.” Ms. McFarland, I would like to direct your attention to the second page. And under the heading, “Reasons to Set the PCF,” there’s a bullet point that says, “Makes clear the administration’s commitment to ensure existing common equity holders will not have access to any positive earnings from the GSEs in the future.”

Now, I am not asking you about December 2010. You weren’t there.

A. Correct.

Q. But when you did arrive in the middle of 2011, did you see any manifestations of the administration’s commitment to ensure existing common equity holders would not have access to any positive earnings from Fannie?

MR. LAUFGRABEN (defendant’s attorney): Object to the form of the question; lack of foundation.

A. The only example that I — that comes to mind of note is the Third Amendment.

Q. (BY MR. THOMPSON: plaintiff attorney) Yeah. And what was your reaction when you learned — you learned of a Third Amendment a couple of days beforehand; is that right?

A. Correct.

Q. All right. And what was your reaction to it?

MR. LAUFGRABEN: Objection; vague.

Q. (BY MR. THOMPSON) Did you think it was the effective nationalization of the companies?

MR. LAUFGRABEN: Objection; form.

MR. BARTOLOMUCCI (defendant attorney): Objection; form.

A. No, I didn’t view it as nationalizing. It borders on that; I can see.

But I had, shortly before that, had a meeting with Treasury whereby we reviewed our forecasts. I had expressed a view that I believed we were now in a sustainable profitability, that we would be able to deliver sustainable profits over time. I even mentioned the possibility that it could get to a point in the not-so-distant future where the factors might exist whereby the allowance on the deferred tax asset would be released. We were not there yet, but, you know, you could see positive things occurring.

So when the amendment went into place, part of my reaction was they did that in response to my communication of our forecasts and the implication of those forecasts, that it was probably a desire not to allow capital to build up within the enterprises and not to allow the enterprises to recapitalize themselves.

Q. (BY MR. THOMPSON) And with whom at Treasury do you have this meeting?

A. So the — which meeting?

Q. The one you just referenced where —

A. Where I had the discussion about the forecasts?

Q. Yes.

A. So it was a common practice for us to meet with Treasury on a quarterly basis to review our results from the past quarter and to update them on our forecasts; you know, our updated forecast.

And that meeting — I don’t remember every specific person in the meeting. I was there; Tim Mayopoulos, who was the CEO of Fannie Mae was there; Dave Benson I think would have been there. He — he was the Treasurer of Fannie Mae at the time. That would have been normal for him to be in attendance. Mary Miller, the Secretary of the Treasury, was there.

Tim —

Q. Bowler?

A. Thank you. I believe he was there. He was normally at those meetings. I believe there was a gentleman — and I can’t remember his name — who used to work at Fannie that was now at Treasury that was, like, a Financial Analyst. I think he was there because they knew part of the topic we wanted to talk about was these projections. And then there were probably other members of — excuse me — FHFA, the U.S. Treasury, and Fannie Mae to talk about some other topics that were going to be covered in that meeting. Because normally we reviewed financials, but they were — you know, there may be one, two, or three other topics that would be discussed.

And both Fannie and Treasury would then make sure they had the — the personnel around the table to facilitate those conversations. I don’t remember in this particular meeting what those topics were and who those individuals were.

Q. Do you remember Jeff Foster being at the meeting?

A. He could have been.
MR. LAUFGRABEN: Objection.

A. He could have been. I can’t confirm yes or not.


A. It wouldn’t surprise me if he was. That would have been reasonable.

Q. And Mario Ugoletti; was he at the meeting? Do you know?

A. know, again, because I don’t have perfect recollection of all the attendees. If you said, “Here’s this document. Mario was there,” I would say, “Okay. He was there.” I don’t remember him being there, but he could have been there.

Q. Okay. And so would it be fair to say that there were at least five or six Treasury officials at this meeting?

A. Probably, yes.

Q. Okay. And did the meeting take place at Treasury?

A. Yes, it did.

Q. And was this within less than a month before the net worth sweep?

A. I believe it was the week before.

Q. Okay.

A. It was very — it was within the week or two. It was very close to.

Q. Would it surprise you to know that there’s an e-mail from Tim Bowler where he’s saying, “We need to make a renewed push on the net worth sweep”?

MR. LAUFGRABEN: Objection; form, lack of foundation.

A. I don’t have knowledge of that e-mail.


Q. (BY MR. THOMPSON) Okay. And was this meeting — I am sorry if I asked this.

Was it at Treasury?

A. Yes.

Q. And would this — how would this have been set up?

A. Normally Dave Benson was our primary sort of liaison between the company and Treasury. And these meetings were generally scheduled the day — you know, because they were — we had the regular kind of quarterly meetings, and there might be some other meetings of; you know, specific topics that would occur in between those other meetings.

I don’t know — I can’t recollect exactly, you know, whether we would initiate setting it up, or Treasury would initiate setting it up. I don’t know how the logistics all worked out.

Q. And when you were making your presentation, did you have a PowerPoint that you were using?

A. A few pages, yes, from a PowerPoint.
MR. THOMPSON: Okay. I don’t believe,

Mr. Bartolomucci — and I apologize if I am wrong about this, but I don’t believe we have that PowerPoint presentation.

So I would ask if you would be kind enough to go back and talk to your client and see if they did produce it? And if they didn’t produce it, whether they have it, because it’s our view that it’s highly material to these depositions?

MR. BARTOLOMUCCI: Request noted.
MR. THOMPSON: Likewise, I would make the same request to the Government, that to the extent the Government has a copy of this document, I don’t believe it’s been provided to us. Again, I apologize if I am wrong, but I don’t have knowledge of all the pages. But it’s not one that I have seen.

I would just request if you could ask your client, Treasury, whether they have the document, whether it’s been produced, whether privilege has been asserted, which I can’t imagine since Fannie was there.

Will you take that back to your client?

MR. LAUFGRABEN: I will take it under advisement.

MR. THOMPSON: Thank you. I appreciate that.

Q. (BY MR. THOMPSON) Okay. And did you have internal — so you had a PowerPoint presentation you used at the meeting.

Did you have also have any internal documentation that was provided to you in preparation of the meeting?

A. Well, in the sense that I was reviewing actual results and forecasts, there’s a lot of documentation that I looked at on both of those to get comfortable and ultimately sign off on the financials and sign off on
the 10-Q —


Q. Did you ever have any similar type of conversation with anyone at the FHFA about the deferred tax asset prior to the Third Amendment?

 A. Yes.

Q. Okay. And tell me about that meeting.

A. Well —

MR. LAUFGRABEN: Object to the form of the question; vague.

A. I don’t — so just as we — you know, we had a formal quarterly sit-down with Treasury. We had more regular interactions with individuals at FHFA. So one either Jeff Spohn and/or Brad Martin would attend our Executive Committee meetings.

And so generally anything I was going to say at Treasury, I was already telling the Executive Committee, and Brad or Jeff would have been present at those meetings. And as such, my reviews of actuals and forecasts and even the — the — the raising of the potential that that allowance might be reversed in the not-so-distant future I would have mentioned at an Executive Committee meeting, and Jeff and/or Brad would have been present to hear that.

Q. (BY MR. THOMPSON) And just to be clear on that, that would have been within a month of the Third Amendment?

A. It would have been prior to that —

Q. Yes.

A. — because it’s all part of the discussions we have through the quarter-end-close process and forecast preparation and Board prep and all that kind of stuff that takes place in that cycle.

Q. Just so the record is clear, when you say, “prior to that,” what period would that have been?

A. Well, it would have been probably — I would suspect it was — something that occurred in July would be my — because of the timing.

You know, you’re closing the books for the second quarter. We’re prepping for the upcoming Board meetings, getting the forecasts done, letting the team know when the results are coming out for the quarter, all of those kinds of conversations that would happen internal at Fannie Mae before we would ever have that conversation with Treasury.

Q. Okay. And I am sorry I interrupted you. You described these —

A. And then with the — we also provide — so we cannot file our Q unless DeMarco gave us permission to file the Q.

So drafts of our filings were also provided to FHFA first. They had the opportunity to provide feedback, and then we could incorporate that feedback and then got approval for the final filings. We also had a press release that would go along with — when we filed a Q, we would go out with a press release.


Q. Okay. And when you say that you would have had dialogue with people at FHFA about the deferred tax assets, with who would you have had the dialogue?

Would that have been Mario Ugoletti?

MR. LAUFGRABEN: Object to the form of the question; vagueness as to time period.

A. Yeah. So early on, it’s probably through the Chief Accountant’s office of the FHFA, because it is a technical accounting matter.

Q. And do you happen to recall —

A. I can pick him out of a lineup.

Q. Okay. We’ll show you some names later on.

A. I tell you, I — ask me a number, I can probably give it to you. People’s names…

It would have started there. Eventually there were conversations with Director DeMarco and key direct reports of his, but that — the — those — the DeMarco conversations occurred when we were actually in the serious mode of potentially — we were looking — we did a full analysis at the end of the second quarter; no release. We did a full analysis at the end of the third quarter; no release.

When we were doing the analysis for the fourth quarter of 2012, we started to get to a point where we were tipping towards release, and that’s when I began to have conversations with more senior folks at FHFA on it. But they were already aware of the statement that I made to Treasury. I mean, in general, I put it on people’s radar screens that it’s something that could happen in the not-so-distant future.  

I will say that I believe Mary Miller asked me in this meeting about how large would it be and  did I have any idea of when.

Q. Yeah.

A. And I believe my response was around 50 billion, but that could be larger or smaller depending upon when. The further out in time it is, the smaller it probably would be. It is part of the evidence that it might be good. So the further out in time that it would be released, the smaller the release size would be. But I said probably in the  50-billion-dollar range and probably sometime mid 2013 at that time when I met with them late July, early August 2012.

But I said we had not done a real in-depth analysis, so I was just kind of giving her kind of my off-the-cuff perspective in the moment.

Q. And FHFA was on notice that you had sent this message to Treasury?

A. Yes.
MR. LAUFGRABEN: Object to the form of the question. A. Yes.

Q. (BY MR. THOMPSON) And they were on notice of that fact before the Third Amendment; is that right?

MR. LAUFGRABEN: Same objection.

A. Yes.

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