FHFA Motion to Conceal Documents

THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

In re Federal National Mortgage | MDL No. 1668 Association Securities, Derivative and | “ERISA” Litigation | | | Consolidated Civil Action No. 1:04-cv-01639 In re Fannie Mae Securities Litigation | | Judge Richard J. Leon |

MOTION OF THE FEDERAL HOUSING FINANCE AGENCY FOR A PROTECTIVE ORDER

Intervenor, the Federal Housing Finance Agency (the “FHFA”), respectfully moves for a

protective order to prevent the public disclosure of certain documents. As explained in more

detail in the accompanying Memorandum of Points and Authorities, the documents the parties

seek to publicize should be protected because disclosure of the documents would damage the on-

going communications the FHFA has both internally and with its regulated entities. In this

historic housing crisis, ensuring that these communications are fulsome and candid has perhaps

never been more important. Many of the documents should also be protected because Congress

has accorded them protection under the Privacy Act and other statutes. Furthermore, the

disclosure of some of those documents would have an undue chilling effect on law enforcement

investigations conducted by inspectors general throughout the government while serving only to

harass and embarrass current and former Agency employees.

Even though the contested documents may ultimately prove to be completely irrelevant,

the FHFA’s motion does not affect the parties ability to use the documents in this litigation. To

prevail in this motion, the FHFA need only show good cause why the documents should not be

released publicly now. See Fed. R. Civ. P. 5.2(e), 26(c). Given the weight of the Governmental

interests involved, the lack of any evidentiary value associated with the documents, and the fact

Case 1:04-cv-01639-RJL Document 1004 Filed 02/09/12 of 28

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that the documents can be used subject to the already existing protective order, the FHFA has

met that burden.

A proposed ordered is attached.

Dated: February 9, 2012 Respectfully submitted,

/s/ Joseph J. Aronica Joseph J. Aronica DUANE MORRIS LLP 505 9th Street N.W., Suite 1000 Washington, DC 20004 Phone: (202) 776-7824 Fax: (202) 478-1885 Stephen E. Hart FEDERAL HOUSING FINANCE AGENCY 1700 G Street, N.W. Washington, DC 20552 Phone: (202) 414-3800 Fax: (202) 414-6504 Attorneys for the Federal Housing Finance Agency


THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

In re Federal National Mortgage | MDL No. 1668 Association Securities, Derivative and | “ERISA” Litigation | | | Consolidated Civil Action No. 1:04-cv-01639 In re Fannie Mae Securities Litigation | | Judge Richard J. Leon |

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF THE FEDERAL HOUSING FINANCE AGENCY

FOR A PROTECTIVE ORDER


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TABLE OF CONTENTS

Page

MOTION OF THE FEDERAL HOUSING FINANCE AGENCY FOR A PROTECTIVE ORDER ................................................................................................................................ i

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF THE FEDERAL HOUSING FINANCE AGENCY FOR A PROTECTIVE ORDER ................................................................................................................................1

TABLE OF CONTENTS .................................................................................................................2

I. INTRODUCTION ...............................................................................................................5

II. FACTUAL BACKGROUND ..............................................................................................7

III. ARGUMENT .......................................................................................................................9

A. Standard. ................................................................................................................. 9

B. The Agency’s Deliberative Processes Would Be Harmed By Disclosure. ........... 11

C. The Agency’s Examination Process Would Be Harmed By Disclosure. ............. 12

D. The Policy Underlying the Privacy Act Weighs In Favor Of The Protective Order. ................................................................................................... 13

E. Each Document Warrants Protection. ................................................................... 15

IV. CONCLUSION ..................................................................................................................25


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TABLE OF AUTHORITIES

United States Supreme Court Cases

NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 95 S. Ct. 1504, 44 L. Ed. 2d 29 (1975) .............................................................................................................11, 12

Seattle Times Co. v. Rhinehart, 467 U.S. 20, 104 S. Ct. 2199, 92 L. Ed. 2d 17 (1984) ...............................................................................................................9, 10

United States Court of Appeals Cases

Dow Jones & Co. v. U.S. Dep't of Justice, 917 F.2d 573 (D.C. Cir. 1990) ...................................11

EEOC v. Nat’l Children’s Ctr., Inc., 98 F.3d 1406 (D.C. Cir. 1996) ............................................10

In re Subpoena Served Upon the Comptroller of the Currency, and the Secretary of the Board of Governors of the Federal Reserve System, 967 F.2d 630 (D.C. Cir. 1992) ..................................................... 6, 12-13

Johnson v. Greater Southeast Community Hosp. Corp., 951 F.2d 1268 (D.C. Cir. 1991) .....................................................................................................10

Laxalt v. McClatchy, 809 F.2d 885 (D.C. Cir. 1987) ..............................................................10, 13

Lesar v. Department of Justice, 636 F.2d 472 (D.C. Cir. 1980) ....................................................14

Russell v. Department of the Air Force, 682 F.2d 1045 (D.C. Cir. 1982) .....................................12

United States v. Hubbard, 650 F.2d 293 (D.C. Cir. 1980) ......................................................10, 25

United States District Court Cases

Bloomberg, L.P. v. SEC, 357 F. Supp. 2d 156 (D.D.C. 2004) .......................................................12

Cofield v. City of LaGrange, 913 F. Supp. 608 (D.D.C. 1996) .....................................................12

Judicial Watch, Inc. v. U.S. Dep't of Commerce, 90 F. Supp. 2d 9 (D.D.C. 2000) ...............................................................................................11, 12

Judicial Watch, Inc. v. Reno, No. 00-CIV-723, 2001 U.S. Dist. LEXIS 25318 (D.D.C. March 30, 2001) ..............................................................12


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Stolt-Nielson Trans Group v. United States, 480 F. Supp. 2d 166 (D.D.C. 2007) .....................................................................................6, 11, 12

Statutes 5 U.S.C. § 552 ................................................................................................................................10

5 U.S.C. § 552a ............................................................................................................................6, 9

18 U.S.C. § 1905 ............................................................................................................................10

Rules

Fed. R. Civ. P. 5.2 ........................................................................................................................7, 9

Fed. R. Civ. P. 26 .........................................................................................................................7, 9


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I. INTRODUCTION

Plaintiffs allege that defendants committed various types of securities fraud and seek

billions of dollars in damages. The parties have now filed various motions for summary

judgment with each party claiming that there is no dispute of any material fact that would hinder

a judgment in that party’s favor. The documents at issue herein constitute a small number of

exhibits to those motions for summary judgment. For many of these documents, the only dispute

lies in whether a few lines of that particular document will be redacted. Through extensive meet

and confers with the parties, the Federal Housing Finance Agency (FHFA) has greatly narrowed

the scope of what this Court needs to decide. The only documents still in dispute are those

whose release would harm the Agency’s on-going examination and deliberative processes, or

would have a chilling effect on investigations conducted by inspectors general, if publicly

disclosed. Significantly, the protective order the FHFA seeks would not impair the parties’ use

of the documents, but would only prevent the public release of the documents or, in most cases,

certain portions of documents at this time.

As this Nation continues to address the collapse of the housing market that led to the

worst economic crisis since the Great Depression, the FHFA’s mission to “[p]rovide effective

supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the

Federal Home Loan Banks” so as “to promote their safety and soundness, support housing

finance and affordable housing, and support a stable and liquid mortgage market” has taken on

historic significance.1 The FHFA placed both Fannie Mae and Freddie Mac into

Conservatorship on September 6, 2008. Contemporaneously, the United States Treasury entered

into Senior Preferred Stock Purchase Agreements with the Enterprises through which the

1 http://www.FHFA.gov/Default.aspx?Page=38.


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Treasury agreed to provide each Enterprise with funding sufficient to avoid negative net worth at

each quarter’s end. To date, Treasury has kept the Enterprises afloat through quarterly

injections, the sum of which now total nearly $200 billion in taxpayer money. With the

condition of the housing market and an enormous amount of taxpayer money in the balance,

preservation of the FHFA’s fulsome and candid communications both within the Agency and

with the Enterprises is essential to the Nation’s economy.

The Agency seeks to protect from public disclosure documents that could damage the

FHFA’s on-going intra-Agency communications and communications with its regulated entities.

These documents are traditionally afforded a qualified protection through the deliberative

process privilege, the examination privilege, and the Privacy Act. The Agency is not asserting

these privileges to prevent the parties from using the documents in this case, but is invoking the

policy underlying these privileges to establish good cause for a protective order to prevent public

disclosure. These privileges and protections are meant to facilitate the fulsome and candid

communication required for a federal regulator to competently perform its statutory charge. See,

e.g., In re Subpoena Served Upon the Comptroller of the Currency, and the Secretary of the

Board of Governors of the Federal Reserve System, 967 F.2d 630, 633 (D.C. Cir. 1992); Stolt-

Nielson Trans Group v. United States, 480 F. Supp. 2d 166, 178 (D.D.C. 2007). All of the

documents, if released, would damage the ongoing relationship the Agency has with the

Enterprises in addition to damaging the deliberative process within the Agency.

But while public release of the document would harm the Agency’s on-going processes,

the documents some parties seek to release have either no relevance or have such limited

relevance as to not outweigh the Agency’s good cause to keep them under seal. The documents

the parties seek to publicly release fall within three categories: (1) those reflecting Fannie Mae’s


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communications to the Agency and the Agency’s analysis of these communications and

documents; (2) those reflecting internal Agency communications between Agency personnel;

and (3) transcript testimony of various OFHEO officials given during an investigation by the

HUD Inspector General or documents revealing such testimony. The documents in the first

group are irrelevant for what they conspicuously lack. Not one document reflects a

communication that Franklin Raines, Timothy Howard, or Leanne Spencer had with OFHEO.

As to those documents in the second and third groups, there is no indication that any party to this

case was aware of any of OFHEO’s internal discussions regarding Fannie Mae or of the

testimony. As a result, none of the documents are probative as to intent or lack thereof to

commit fraud.

Under Rules 5.2(e) and 26(c) of the Federal Rules of Civil Procedure, the FHFA must

demonstrate good cause for the Court to issue a protective order over the contested documents.

Through its predecessor, the Agency produced an enormous quantity of material subject to this

Court’s pretrial protective order. See, e.g., 2/27/09, p. 15:7-11. The parties have sought to use

only an infinitesimal amount of that production in their motions for summary judgment.

Through the Agency’s and the parties’ diligent efforts, an even smaller number of documents are

being presented to the Court. Given the negligible relevance of these remaining contested

documents and the harm that the public release of the documents would have on the FHFA’s

mission, an order preventing the public disclosure of the contested documents is appropriate.

II. FACTUAL BACKGROUND

A pretrial protective order has governed the treatment of produced confidential material

in this case since April 24, 2006. Dkt. 137. Many of the documents that the Agency produced

and all of the documents contested herein are protected by this Court’s pretrial protective orders.


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See Dkt. 556. When the Agency was producing documents, it specifically relied on the

protections afforded by this Court through the protective orders. See, e.g., Dkt. 334, p. 2

(“Despite OFHEO’s decision to produce documents subject to a reservation of the examination

privilege within the confines of the Protective Order, no documents covered by the examination

privilege are public documents.”). As the Agency continued to produce documents, various

issues concerning the Agency’s deliberative process were debated and litigated. The Court had

numerous occasions to balance the Agency’s interest in maintaining the privilege against the

parties’ need for the documents. See, e.g., Motion Hearings 7/20/09, 7/22/09. In making those

decisions, the parties and the Court indicated that the presence of the protective order

ameliorated the Agency’s concerns regarding the production of the documents. See, e.g., TR.

2/27/09, p. 15:7-11 (by the Court: “There is a Protective Order here. They can't use it in any

other case, any other litigation, any other setting. They are duty bound under the code, not only

the order, but they are duty bound under the Code of Professional Conduct. What can they

do?”), p. 7:11-13 (by counsel for KPMG: “We are saying that within the bounds of the Protective

Order here this Court has entered that we would use the same sneak-a-peek approach.”), p. 9:24-

10:4 (by counsel for KPMG: “District Judges understand precisely what you understood that the

volumes of materials that are in this kind of quagmire of deliberative process, possibly privileged

or not, are such that you really need something to be able to allow the honor of lawyers looking

at this under a Protective Order to make a judgment pro or con to go forward.”). The Agency

relied on the protections afforded by this Court’s protective orders throughout its productions in

this case.


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III. ARGUMENT

The FHFA is entitled to a protective order preventing the public disclosure of the

contested documents upon a showing of good cause. See Fed. R. Civ. P. 5.2(e), 26(c). Here, the

Agency has demonstrated good cause. The release of any of the documents would damage the

Agency’s ability to fulfill its mission at a time of crisis in the housing market. The Agency

depends on fulsome and candid communications within the Agency and with the regulated

entities in order to complete its mission. Disclosure of the Agency’s internal discussions will

harm the quality of those discussions and may, as a result, reduce the quality of the Agency’s

final determinations. Disclosure of the Agency’s communications with the regulated entities will

make it more difficult for the Agency to obtain full and candid information regarding the

activities of the regulated entities, which will undermine the efficacy of the entire regulatory

framework. Moreover, many of the documents are protected under the Privacy Act. 5 U.S.C. §

552a. The release of this information (testimony taken during the HUD IG investigation) would

not only run counter to the Privacy Act, but also will have a chilling effect on the ability of

government agencies to encourage employees to cooperate in such investigations. The

protective order that the FHFA requests will not only prevent that harm, but will permit the

parties to use the documents for whatever negligible evidentiary value they may have in this

case. The Court should grant the requested protective order.

A. Standard.

“Liberal discovery is provided for the sole purpose of assisting in the preparation and

trial, or the settlement, of litigated disputes.” Seattle Times Co. v. Rhinehart, 467 U.S. 20, 34,

104 S. Ct. 2199, 92 L. Ed. 2d 17 (1984). And “[t]here is an opportunity, therefore, for litigants


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to obtain -- incidentally or purposefully -- information that not only is irrelevant but if publicly

released could be damaging to reputation and privacy.” Id. Through Rules 5.2(e) and 26(c), the

Court may give effect to the Government’s “substantial interest in preventing this sort of abuse

of its processes.” Id. When doing so, the Court may evaluate the facts and circumstances

presented—including whether the documents are non-public, the Governmental interests in the

documents, and the prejudice that will result from publicizing the documents.

Though there is a “strong presumption in favor of public access to judicial proceedings”,

Johnson v. Greater Southeast Community Hosp. Corp., 951 F.2d 1268, 1277 (D.C. Cir. 1991),

that presumption may be overcome by balancing the Hubbard factors:

(1) the need for public access to the documents at issue; (2) the extent of previous public access to the documents; (3) the fact that someone has objected to disclosure, and the identity of that person; (4) the strength of any property and privacy interests asserted; (5) the possibility of prejudice to those opposing disclosure; and (6) the purposes for which the documents were introduced during the judicial proceedings.

EEOC v. Nat’l Children’s Ctr., Inc., 98 F.3d 1406, 1409 (D.C. Cir. 1996) (citing United States v.

Hubbard, 650 F.2d 293, 317-22 (D.C. Cir. 1980). When considering the Hubbard factors and

the protective order the FHFA seeks, the Court must consider that the Privacy Act protects a

number of documents the parties seek to publish. See Laxalt v. McClatchy, 809 F.2d 885, 889

(D.C. Cir. 1987). The Court must also take into consideration that the Agency would and has

denied public access to the contested documents under applicable FOIA exceptions and, in fact,

is under a legal obligation to keep the contested documents from being publicly available. See 5

U.S.C. § 552(b); 18 U.S.C. § 1905; Examination Handbook, Office of Federal Housing

Enterprise Oversight, Office of Examination and Oversight Chapter 3 (December 1998). And

the Court must consider the detrimental impact that the public release would have on the

Agency’s internal deliberative processes and its ongoing examinations of the Agency’s regulated


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entities. Finally, this Court should recall that even though most of the documents produced by

the Agency in this litigation would be protected by the Examination Privilege, the Agency

produced the documents without raising the privilege on a document-by-document basis because

there was a protective order in place to prevent public disclosure of the documents. As this

Court stated to counsel for the Agency in a hearing, “There is a Protective Order here. [The

parties] can't use [the documents] in any other case, any other litigation, any other setting. They

are duty bound under the code, not only the order, but they are duty bound under the Code of

Professional Conduct.” TR. 2/27/09 p. 15:7-11. The Agency relied on these protections. As

such, each of these factors, taken individually or cumulatively, constitute good cause for the

protective order sought.

B. The Agency’s Deliberative Processes Would Be Harmed By Disclosure.

The FHFA’s deliberative processes would be harmed by public disclosure of the

contested documents. “The quality of administrative decision-making would be seriously

undermined if agencies were forced to operate in a fish bowl.” See Judicial Watch, Inc. v. U.S.

Dep't of Commerce, 90 F. Supp. 2d 9, 13-15 (D.D.C. 2000) (quoting Dow Jones & Co. v. U.S.

Dep't of Justice, 917 F.2d 573 (D.C. Cir. 1990); NLRB v. Sears, Roebuck & Co., 421 U.S. 132,

151, 95 S. Ct. 1504, 1516, 44 L. Ed. 2d 29 (1975). Protecting deliberations from public

disclosure will “assure that subordinates within an agency will feel free to provide the decision

maker with their uninhibited opinions and recommendations without fear of later being subject to

public ridicule or criticism.” Stolt-Nielson Trans Group v. United States, 480 F. Supp. 2d 166,

178 (D.D.C. 2007). By the same token, the protection will ensure that decision-makers feel free

to reach out to subordinates for information and advice to better inform and strengthen decisions


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and policies.2 The Government’s strong interest in maintaining that confidentiality is also

“grounded in a desire to encourage open, frank discussions on matters of policy within the

agencies, to protect against public confusion from premature disclosure of proposed policies, and

to protect the integrity of the decision-making process.” Judicial Watch, Inc. v. Reno, No. 00-

CIV-723, 2001 U.S. Dist. LEXIS 25318, *6 (D.D.C. March 30, 2001); Russell v. Department of

the Air Force, 682 F.2d 1045, 1048 (D.C. Cir. 1982); Stolt-Nielson, 480 F. Supp. 2d at 178.

Vitiating the Government’s interest would chill participation in the deliberative process and

cause “injury to the quality of agency decisions.” Cofield v. City of LaGrange, 913 F. Supp. 608,

615 (D.D.C. 1996) (quoting NLRB v. Sears, Roebuck & Co., 421 U.S. at 151. As discussed

below, many of the documents the parties seek to publicize bear directly on the Agency’s

internal deliberations. Disclosure of those documents would harm the Agency’s deliberative

processes.

C. The Agency’s Examination Process Would Be Harmed By Disclosure.

The FHFA’s examination process and communications with its regulated entities would

also be compromised by the public release of the contested documents. As the D.C. Circuit has

opined:

safety and soundness supervision is an iterative process of comment by the regulators and response by the [regulated entity]. The success of the supervision therefore depends vitally upon the quality of communication between the regulated. . .firm and the . . . regulatory agency. Because . . . supervision is relatively informal and more or less continuous, so too must be the flow of communication between the [regulated entity] and the regulatory

2 The rationale for protecting an agency’s deliberative processes does not require the agency make any final determination. Judicial Watch, Inc. v. U.S. Dept. of Commerce, 90 F. Supp. 2d 9, 14 (D.D.C. 2000). Rather, it is the “give-and-take of the consultative process” that merits protection. Bloomberg, L.P. v. SEC, 357 F. Supp. 2d 156, 168 (D.D.C. 2004).


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agency. [The regulated entity’s] management must be open and forthcoming in response to the inquiries of . . . examiners, and the examiners must in turn be frank in expressing their concerns about the [regulated entity]. These conditions simply could not be met as well if communications between the [regulated entity] and its regulators were not privileged.

In re Subpoena Served Upon the Comptroller of the Currency, and the Secretary of the Board of

Governors of the Federal Reserve System, 967 F.2d 630, 633 (D.C. Cir. 1992). Many of the

documents the parties seek to publicize reflect communications between the Agency’s examiners

and Fannie Mae employees. As a result, publication of those documents would erode the

confidence current employees of the regulated entities have that their communications with the

Agency will not be disclosed. Without that confidence, the Agency’s ability to obtain fulsome

and candid information about the regulated entities will be impaired. That, in turn, will

compromise the Agency’s ability to regulate the Enterprises—a particularly troubling

development in this time of historic crisis. The discussion below on the contested documents, it

is clear that disclosure of the contested documents will cause the precise harm against which the

examination protections are meant to protect.

D. The Policy Underlying the Privacy Act Weighs In Favor Of The Protective Order.

The parties also seek to publicize the system of records maintained by the Inspector

General for the Department of Housing and Urban Development. Through the Privacy Act,

Congress has articulated its judgment that these documents should be shielded from public

release. See Laxalt, 809 F.2d at 889. The protection exists for a good reason—if Inspector

General investigatory files are not kept secret, then there will be a chilling effect on would-be

cooperators. Potential cooperators would fear retribution, scorn, or even public ridicule.

Moreover, targets or subjects of an investigation who are not prosecuted would be exposed to


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public scorn or humiliation if selected portions of an Inspector General’s investigation were

made public as part of a litigation strategy in a wholly separate litigation. Lesar v. Department

of Justice, 636 F.2d 472, 488 (D.C. Cir. 1980) (finding that an individual’s privacy interest

weighs against public disclosure of the individual’s association with a law enforcement file

because the disclosure may cause embarrassment or reputational harm sufficient to impair the

person’s privacy interests). Both of these policy rationales underlying the Privacy Act are

implicated here. The parties seek to publicly identify government employees who cooperated

with the HUD Inspector General, including those who acted as confidential witnesses,3 and the

parties seek to expose the targets of the HUD Inspector General investigation to public scorn.

That fact is clear from the parties’ selective use of the investigation file. Their litigation strategy

is to try their case in the court of public opinion. The Inspector General’s full report is publicly

available and could be used in whole or part. But instead, the defendants seek to use selected

bits and pieces of the non-public documents underlying the Inspector General’s report for their

improper motives. If there is any evidentiary value to what the parties seek to use (and there is

not), then the parties can still garner that benefit within the confines of the protective order the

Agency seeks. But the policy underlying the Privacy Act clearly weighs in favor of granting the

FHFA’s motion.

3 All of the witnesses interviewed by the HUD Inspector General have objected to the release of their names and their testimony. Moreover, the HUD Inspector General opposes the release of the material in his investigative files. Dkt. 1003. The FHFA adopts and joins the reasoning set forth in the Inspector General’s filing.


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E. Each Document Warrants Protection.

1. 56 sample derivative transactions. (TAB 1)4

The FHFA seeks to prevent the public disclosure of portions of Exhibit 8 to the

Declaration of Adam B. Miller in Support of Defendant Leanne G. Spencer’s Motion for

Summary Judgment. The same document is attached as Exhibit 80 to the Declaration of Lissa

Percopo in Support of Defendants’ Joint Motion for Partial Summary Judgment Based on FAS

133 Accounting Issues. The exhibit is a chart detailing an OFHEO examiner’s comments

regarding 56 sample derivative transactions. One column of the chart is titled “comments” and

contains the examiners analysis and opinions. Another column of the chart contains

“implications.” These columns contain information that constitutes or reflects pre-decisional,

deliberative, personal opinion of an agency employee prepared to assist in rendering a

supervisory decision. The document reflects open debate of alternative approaches to

supervisory action and production would inaccurately reflect the views of OFHEO. The exhibit

is also an internal agency document relating to the Agency’s examinations of Fannie Mae, and

any analyses, opinions, and recommendations therein should not be disclosed to the public.

Consequently, the FHFA requests that the implications and comments columns be redacted

before filing. Attached to this motion at Tab 1 are relevant pages of the exhibit with yellow

highlighting to reflect which portions of the exhibit the FHFA seeks to have redacted.

2. OFHEO internal PowerPoint presentation. (TAB 2)

The FHFA seeks to prevent the public disclosure of Exhibit 9 to the Declaration of Adam

B. Miller in Support of Defendant Leanne G. Spencer’s Motion for Summary Judgment. The

4 FHFA expects to file its Exhibits to this Motion under seal. FHFA will send a courtesy copy to the Court in a binder. Exhibits to this Motion will be referred to by the Tab behind which they appear in the binder.


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same document is attached as Exhibit 78 to the Declaration of Lissa Percopo in Support of

Defendants’ Joint Motion for Partial Summary Judgment Based on FAS 133 Accounting Issues.

The exhibit is a PowerPoint presentation titled “GSE Adoption of FAS 133.” The document was

prepared by an OFHEO examiner to give a presentation to OFHEO management regarding

adoption of the FAS 133 accounting standard by Fannie Mae and Freddie Mac. The document

contains information that constitutes or reflects pre-decisional, deliberative, personal opinion of

an agency employee prepared to assist in rendering a supervisory decision. The document

reflects open debate of alternative approaches to supervisory action and production would

inaccurately reflect the views of OFHEO. The exhibit is also an internal agency document

relating to the Agency’s examinations of Fannie Mae and Freddie Mac, and any analyses,

opinions, and recommendations therein should not be disclosed to the public. Consequently, the

FHFA requests that the document remain under seal. Attached to this motion at Tab 2 is the

presentation in question.

3. Excerpts of Deposition Testimony of OFHEO Examiners regarding the 56 sample derivative transactions and PowerPoint Presentation. (TAB 3, 4)


Declaration of Adam B. Miller in Support of Defendant Leanne G. Spencer’s Motion for

Summary Judgment and portions of Exhibit 7 to Declaration of Lissa Percopo in Support of


These exhibits are excerpts of the deposition testimony of the OFHEO examiner who prepared

the chart of 56 sample derivative transactions and the PowerPoint presentation described above.

These transcript excerpts contain the examiner’s testimony related to those documents. The

testimony reveals pre-decisional, deliberative, personal opinion of an Agency employee

regarding internal Agency documents. For the reasons explained above with respect to the two


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documents that are the subject of the deposition testimony, the FHFA requests that portions of

the testimony related to those documents be redacted before filing. Attached to this motion at

Tabs 3 and 4 are relevant pages of the deposition transcript with yellow highlighting to reflect

the portions of the testimony that FHFA seeks to have redacted.

4. Derivative Working Group Staff Notes to the Director. (TAB 5)

The FHFA seeks to prevent the public disclosure of Exhibit 41 to the Declaration of

Adam B. Miller in Support of Defendant Leanne G. Spencer’s Motion for Summary Judgment.

The same document is attached as Exhibit 8 to the Declaration of Lissa Percopo in Support of


This exhibit is titled Derivatives Working Group Staff Notes to the Director. The document was

prepared by OFHEO personnel for the Director of the Agency regarding the FAS 133 accounting

standard and regarding what regulatory policy the Agency would take with respect to the

standard. The document is a draft and was never finalized. The document contains information

that constitutes or reflects pre-decisional, deliberative, personal opinion of agency personnel

prepared to assist in rendering a supervisory decision. The document reflects open debate of

alternative approaches to supervisory action and production would inaccurately reflect the views

of OFHEO. The exhibit is also an internal Agency document relating to the Agency’s

examinations of Fannie Mae and Freddie Mac, and any analyses, opinions, and recommendations

therein should not be disclosed to the public. Consequently, the FHFA requests that the

document remain under seal. Attached to this motion at Tab 5 is the document in question.

5. Portions of Expert Report of William H. Holder regarding the Staff Notes. (TAB 6)

The FHFA seeks to prevent the public disclosure of very small portions of Exhibit 36 to

the Declaration of Monica K. Loseman in Support of KPMG LLP’s Opposition to Lead


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Plaintiff’s Motion for Partial Summary Judgment on Count III Against Defendant KPMG LLP.

The same document is attached as Exhibit 25 to the Declaration of Monica K. Loseman in

Support of KPMG LLP’s Motion for Summary Judgment. The exhibit is the expert report of

William W. Holder. The report quotes from and cites to portions of the Derivatives Working

Group Staff Notes to the Director, described above. For the reasons explained above with

respect to that document, the FHFA requests that two footnotes containing citations to the

document be redacted before filing. The FHFA does not seek to redact the text to which the

report cites, because redactions of only these citations serves the purpose of protecting the

Agency’s deliberative and examination processes. Attached to this motion at Tab 6 is the

relevant page of the expert report with yellow highlighting to reflect the footnotes the FHFA

seeks to have redacted.

6. Quarterly Assessment of Fannie Mae Market Risk. (TAB 7)

The FHFA seeks to prevent the public disclosure of Exhibits 82 through 87 to the

Declaration of Lissa Percopo in Support of Defendants’ Joint Motion for Partial Summary

Judgment Based on FAS 133 Accounting Issues. These exhibits are Quarterly Assessments of

Fannie Mae market risk. The documents were prepared by OFHEO examiners to assess and rate

Fannie Mae’s compliance with safety and soundness standards related to market risks. Each

quarterly assessment is in the form of a chart, which includes a “comments” column containing

the analysis and opinions of Agency examiners. The documents contain information that

constitutes or reflects pre-decisional, deliberative, personal opinion of an Agency employee

prepared to assist in rendering a supervisory decision. The documents reflect open debate of

alternative approaches to supervisory action and production would inaccurately reflect the views

of OFHEO. The exhibits are also internal Agency documents relating to the Agency’s

examinations of Fannie Mae, and any analyses, opinions, and recommendations therein should


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not be disclosed to the public. Consequently, the FHFA requests that the documents remain

under seal. Attached to this motion at Tab 7 are the quarterly reports in question.

7. Portions of Deposition of OFHEO Examiner regarding the Quarterly Assessments of Fannie Mae Market Risk. (TAB 8)



Judgment Based on FAS 133 Accounting Issues. This exhibit is the transcript of Day 4 of the

deposition of an OFHEO examiner. This transcript volume contains the examiner’s testimony

related to the quarterly assessments described above. The testimony reveals pre-decisional,

deliberative, personal opinion of an Agency employee regarding internal Agency documents.

For the reasons explained above with respect to the quarterly assessments that are the subject of

the deposition testimony, the FHFA requests that portions of the testimony related to those

documents be redacted before filing. Attached to this motion at Tab 8 are relevant pages of the

deposition transcript with yellow highlighting to reflect which portions of the testimony the

FHFA seeks to have redacted.

8. Deposition testimony of OFHEO personnel regarding Freddie Mac Application of FAS 133. (TAB 9)



Judgment Based on FAS 133 Accounting Issues. The exhibit is the transcript of the deposition

of an OFHEO employee. The transcript contains the examiner’s testimony related to Freddie

Mac’s application of the FAS 133 accounting standard as reflected in an investigative report in

2007. The testimony is irrelevant to this case, and it reveals pre-decisional, deliberative,

personal opinion of an Agency employee. The document reflects open debate of alternative

approaches to supervisory action and production would inaccurately reflect the views of


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OFHEO. The exhibit is also an internal Agency document relating to the Agency’s examinations

of Freddie Mac, and any analyses, opinions, and recommendations therein should not be

disclosed to the public. Consequently, the FHFA requests that the document remain under seal.

Attached to this motion at Tab 9 is the transcript in question.

9. Email from then Acting Director of OFHEO to personnel regarding Special Examination of Fannie Mae. (TAB 10)

The FHFA seeks to prevent the public disclosure of Exhibit 82 to the Declaration of Eric

Delinsky in Support of Defendant J. Timothy Howard’s Reply in Support of his Motion for

Summary Judgment. The exhibit is an internal OFHEO email from Stephen Blumenthal to four

OFHEO employees regarding a request for information and an agenda for a meeting to discuss

the Special Examination of Fannie Mae. The document contains information that constitutes or

reflects pre-decisional, deliberative, personal opinion of the Agency Acting Director related to a

then-ongoing special examination. The Director’s request for information and the agenda are

clearly part of the pre-decisional and deliberative process. The exhibit is an internal Agency

document relating to the Agency’s examinations of Fannie Mae, and any analyses, opinions, and

recommendations therein should not be disclosed to the public. Consequently, the FHFA

requests that the document remain under seal. Attached to this motion at Tab 10 is the email in

question.

10. Email from then Acting Director of OFHEO to personnel regarding Freddie Mac Special Examination. (TAB 11)


Monica K. Loseman in Support of KPMG LLP’s Opposition to Lead Plaintiff’s Motion for

Partial Summary Judgment on Count III Against Defendant KPMG LLP. The exhibit is an

internal OFHEO email from Stephen Blumenthal to several OFHEO employees regarding the

Special Examination of Freddie Mac. It is therefore irrelevant to the issues of this case. In


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addition to being irrelevant, the document contains information that constitutes or reflects the

personal opinion of an Agency employee related to a then-ongoing special examination, and the

document would inaccurately reflect the views of OFHEO. Consequently, the FHFA requests

that the document remain under seal. Attached to this motion at Tab 11 is the email in question.

11. Email from then Counsel to the Director of OFHEO to a non-agency person. (TAB 12)



Partial Summary Judgment on Count III Against Defendant KPMG LLP. The exhibit is a

personal email sent from Stephen Blumenthal’s OFHEO email account to a person outside the

Agency. The document references the Special Examination of Freddie Mac, and it appears to

contain an irreverent joke and photo attachment sent by Mr. Blumenthal before he became the

Agency’s Acting Director. It is therefore irrelevant to the issues of this case. KPMG is free to

use this document in support of its opposition to Lead Plaintiffs’ motion (for what it is worth)

and are free to attempt to move this document into evidence at trial. The only possible purpose

of publically revealing this document at this time is to embarrass Mr. Blumenthal and the

Agency. As this Court is aware, this document would not ordinarily have been produced in this

litigation but for the lack of any relevance review during the electronic production of Mr.

Blumenthal’s emails. The lack of any relevance review could only be justified by the fact that

there was a protective order in this case to ensure that irrelevant, personal emails would be

shielded from the public view. Consequently, the FHFA requests that the document remain

under seal. Attached to this motion at Tab 12 is the email in question.


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12. Email chain between then counselor to the Director of OFHEO and an Examiner. (TAB 13)



Partial Summary Judgment on Count III Against Defendant KPMG LLP. The exhibit is an

internal OFHEO email chain between an OFHEO examiner and Stephen Blumenthal before he

became the Agency Acting Director regarding a news report related to the linking of Fannie

Mae’s stock options program to its goal to double earnings in five years. The document contains

information that constitutes or reflects pre-decisional, deliberative, personal opinion of an

Agency employee prepared to assist in rendering a supervisory decision. The document reflects

open debate of alternative approaches to supervisory action and production would inaccurately

reflect the views of OFHEO. The exhibit is also an internal Agency document relating to the

Agency’s examinations of Fannie Mae, and any analyses, opinions, and recommendations

therein should not be disclosed to the public. In addition, the email contains what is obviously a

joke by Mr. Blumenthal related to widely known, controversial comments of the President of the

United States less than five months earlier. The joke is irrelevant to the issues of the case.

Consequently, the FHFA requests that the document remain under seal. Attached to this motion

at Tab 13 is the email in question.

13. Examiner notes regarding a presentation by the then Acting Director of OFHEO to certain Agency personnel. (TAB 14, 15)

The FHFA seeks to prevent the public disclosure of Exhibits 15 and 16 to the Declaration

of Monica K. Loseman in Support of KPMG LLP’s Opposition to Lead Plaintiff’s Motion for

Partial Summary Judgment on Count III Against Defendant KPMG LLP. Exhibit 15 is an

excerpt of the deposition testimony of an OFHEO examiner regarding a meeting with OFHEO

personnel and the examiner’s notes reflecting the examiner’s “impressions and perceptions” of a


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presentation made during the meeting. Exhibit 16 contains the notes referred to in the testimony.

The testimony and the handwritten notes contain information that constitutes or reflects pre-

decisional, deliberative, personal opinion of Agency employees. The documents reflect open

debate of alternative approaches to supervisory action and production would inaccurately reflect

the views of OFHEO. The notes are also an internal Agency document relating to the Agency’s

examinations of Fannie Mae and Freddie Mac, and any analyses, opinions, and recommendations

in the notes or revealed in testimony regarding the notes should not be disclosed to the public.

Consequently, the FHFA requests that both exhibits remain sealed. Attached to this motion at

Tabs 14 and 15 are the transcript and the notes.

14. Portions of Expert Report quoting deposition testimony regarding the HUD Inspector General’s investigation. (TAB 16)


Declaration of Eric Delinsky in Support of Defendant J. Timothy Howard’s Reply in Support of

his Motion for Summary Judgment. This document is the expert report of James Barth. The

report extensively quotes from and cites to transcripts of the depositions of OFHEO employees

and extensively reveals pre-decisional, deliberative, personal opinion of Agency employees, as

well as portions of HUD IG testimony. The document reflects open debate of alternative

approaches to supervisory action and production would inaccurately reflect the views of

OFHEO. To the extent that the document reveals analyses, opinions, and recommendations of

agency personnel, those portions should not be disclosed to the public. Consequently, the FHFA

requests that those portions be redacted before filing. The FHFA seeks to have other portions of

this document redacted for additional reasons explained below. Attached to this motion at Tab

16 are the relevant pages of the expert report with yellow highlighting to reflect the portions the

FHFA seeks to have redacted.


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15. HUD IG Investigation testimony and documents. (TAB 15-22)

The FHFA seeks to prevent the public disclosure of portions of Exhibit 83 and all of

Exhibit 84 to the Declaration of Eric Delinsky in Support of Defendant J. Timothy Howard’s

Reply in Support of his Motion for Summary Judgment, portions of Exhibit 111 to the


Judgment Based on FAS 133 Accounting Issues, all of Exhibit 16 to the Declaration of Monica

K. Loseman in Support of KPMG LLP’s Opposition to Lead Plaintiff’s Motion for Partial

Summary Judgment on Count III against Defendant KPMG LLP, Exhibit 112 to the Declaration

of Monica K. Loseman in Support of KPMG LLP’s Motion for Summary Judgment, and small

portions of Exhibits 3, 6, and 9 to the Declaration of W.B. Markovits in Support of Lead

Plaintiffs’ Memorandums of Points and Authorities in Opposition to Defendants’ Joint Motion

for Summary Judgment for Failure to Prove Loss Causation. These exhibits contain or discuss

portions of the HUD IG’s investigatory file. Through these exhibits, the parties seek to expose

the names of people who cooperated with the HUD Inspector General’s investigation or to use

the testimony elicited from those witnesses during the course of the Inspector General’s

investigation. Through the Privacy Act, Congress has expressed its judgment that all of the

materials should be non-public. Release of the information would cause reputational harm not

just to the targets of the Inspector General’s investigation, but also to the cooperating and

confidential witnesses. Moreover, public release would deter future cooperating and confidential

witnesses because those potential witnesses would not be reasonably assured of anonymity. In

addition, public release of portions of the Inspector General’s investigatory file (as opposed to

the Inspector General’s report, which is publicly available) will serve only the distorted view the

parties wish to present to advance their litigation strategies in this case. The effect of the public

release would be to present a distorted view of the Agency’s deliberative processes, which has


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implications far beyond this case. Because the public release would demonstrate the Agency’s

deliberative processes to which its regulated entities (and the public) are not privy, the public

release would harm the Agency’s on-going examination efforts with the regulated entities.

Consequently, the FHFA requests that the documents or portions of documents be sealed or

redacted. Attached to this motion at Tabs 15 through 22, are the relevant pages of each exhibit.

For those documents where redaction is sought, the exhibits include yellow highlighting to

reflect which portions of the exhibit the FHFA seeks to have redacted.

IV. CONCLUSION

When evaluating the facts and circumstances of this case in the context of the Hubbard

factors, it is clear that the documents that the parties seek to release publicly have not previously

been in the public domain, the Government has strong interests in maintaining the confidentiality

of the material, and the Government will be prejudiced by the public release of the information.

Moreover, there is no need for the public to access the documents. And, to the extent there could

be any arguable evidentiary value to the documents (and there is none), there are publicly

available documents that the parties could use.

For these reasons, the Federal Housing Finance Agency respectfully moves for a

protective order to prevent the public release of the documents found in the exhibits.

Dated: February 9, 2012 Respectfully submitted,

/s/ Joseph J. Aronica Joseph J. Aronica DUANE MORRIS LLP 505 9th Street N.W., Suite 1000 Washington, DC 20004 Phone: (202) 776-7824 Fax: (202) 478-1885


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Stephen E. Hart FEDERAL HOUSING FINANCE AGENCY 1700 G Street, N.W. Washington, DC 20552 Phone: (202) 414-3800 Fax: (202) 414-6504 Attorneys for the Federal Housing Finance Agency


FHFA Motion to Conceal Documents

Documents

Transcript of FHFA Motion to Conceal Documents