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THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA In re Federal National Mortgage Association Securities, Derivative and ERISA Litigation In re Fannie Mae Securities Litigation | | | | | | | | MDL No. 1668

Consolidated Civil Action No. 1:04-cv-01639 Judge Richard J. Leon

REPLY TO DEFENDANTS OPPOSITIONS TO MOTION OF THE FEDERAL HOUSING FINANCE AGENCY FOR A PROTECTIVE ORDER Intervenor, the Federal Housing Finance Agency (the FHFA), respectfully submits this reply to the Individual Defendants and KPMG LLPs oppositions to the Motion of the Federal Housing Finance Agency for a Protective Order.1

I.

Defendants May Offer The Documents As Evidence At Trial But May Not Make Them Public Without The Courts Order Allowing Such Public Use. Defendants misstate FHFAs position with respect to the use of the documents at trial.

All of the documents at issue may be offered as evidence at trial.2 The Court will decide at trial whether certain evidence will be admissible and will be made public. The Court has already advised the parties of a procedure at trial whereby the Court may have to consider, on a case by case basis, whether certain confidential documents may be released to the public. If the Court determines to maintain the confidentiality of certain documents, then the Court would close the

KPMG adopted the arguments made in the opposition filed by the Individual Defendants. The Individual Defendants and KPMG are referred to collectively herein as the Defendants. Moreover, all of these documents have already been used as evidence supporting motions for summary judgment when they were filed under seal.
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trial to the public during the presentation of such evidence. The documents at issue here would be subject to that procedure. This is a sound procedure for several reasons. Given that this case may never go to trial, there is no reason for the Court to decide now whether to override FHFAs interest in keeping certain documents confidential. Even if the case proceeds to trial, many of the documents at issue are either not relevant to the issues in this case or their relevance is contingent upon future rulings. For example, as explained in FHFAs Motion, some of these documents are related to Freddie Mac, rather than Fannie Mae (e.g., Tabs 9, 11, and 12), and on that basis alone would never see the light of day at trial. Many of the other documents would be relevant only if the Court determines that the OFHEO Special Examination reports are admissible evidence in this case. The Defendants have argued that the reports are inadmissible and have indicated an intention to file a motion in limine to prevent the Lead Plaintiffs from introducing the reports as substantive evidence. Dkt. 992, Reply Memorandum in Support of Defendants Joint Motion for Partial Summary Judgment Based on FAS 133 Accounting Issues, p. 17 (the hearsay in [the reports] is not admissible evidence.); Dkt. 993, Reply Memorandum in Support of Defendant Franklin D. Rainess Motion for Summary Judgment, pp. 20-21 (asserting that the portions of the reports upon which plaintiffs rely are irrelevant); Dkt. 995, Reply Memorandum in Support of Defendant J. Timothy Howards Motion for Summary Judgment, p. 20 n. 20 (arguing that the reports are inadmissible); Dkt. 996, Reply Memorandum in Support of Defendant Leanne G. Spencers Motion for Summary Judgment, pp. 18-19 (asserting that the reports are not admissible under Rules 403, 702, 801, and 803 of the Federal Rules of Evidence). If the Court precludes the introduction of the reports, then the Defendants theory for why most of these documents would be admissible becomes moot.

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The Defendants do not argue and would have no basis to argue that information unrelated to this case must be made public. Therefore, the Court may never need to reach the issue of whether to reject FHFAs legitimate request that the documents remain sealed or redacted.

II.

The Whole Story Would Not Exculpate The Defendants. The Defendants would have this Court believe that the information FHFA seeks to have

sealed or redacted somehow exculpates them from allegations of fraud. The Defendants paint a dramatic picture of their enduring years of false allegations without being allowed to show to the public exculpatory evidence that has been kept under seal. This picture is a bogus. The Defendants grossly overestimate the value of the documents at issue. A brief review of the documents reveals the fallacy of the Defendants argument. The fact is that the grandiose rhetoric in the Defendants memoranda is the best publicity the Defendants could hope to achieve in this dispute over whether confidential documents should be made public. Indeed, from a public relations perspective, which is what Defendants opposition is all about, the Defendants will have gained more by the arguments in their opposition than they would by the public release of the documents at issue. When the Court reviews the documents that FHFA seeks to keep under seal, it will see that the Defendants far overstate the importance of the public release of these documents. In fact, the information at issue is quite limited. During meet and confers between counsel for the Defendants and counsel for FHFA, FHFA compromised and agreed to the public release of a substantial amount of information that was initially at issue. In reality, what the Defendants seek to do is reveal only a tiny portion of information that went into the agencys final determinations regarding misconduct by senior Fannie Mae

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management.3 For example, the Defendants seek to show the public a small handful of internal agency documents reflecting pre-decisional opinions of an agency employee that, in the Defendants view,4 is inconsistent with later final agency determinations regarding the application of FAS 133. Such public dissemination of internal, pre-decisional agency documents is exactly what the deliberative process privilege is intended to prevent. It is exactly the type of public dissemination that would be prevented under Exemption 5 of FOIA. See 5 U.S.C. 552(b)(5). And the principles underlying the privilege provide more than the requisite good cause for keeping these documents sealed or redacted at this stage. There is genuine value in the principles underlying the deliberative process privilege not merely because courts have recognized the privilege for many decades or because the Congress saw fit to exempt such documents from release under FOIA. A federal agency cannot effectively operate if each and every comment, note, joke, statement, writing, presentation, assessment, or opinion of its staff that occurs before a final decision is subject to public review and criticism. Even worse would be if one were to release to the public only selected predecisional information that does not turn out to be the same as the final determination especially if the purpose of such a release would be to argue that the final determination is flawed. If the reason behind the privilege is to ensure the free flow and exchange of ideas in the pre-decisional process, then it may be unsurprising to find examples of agency employees who offer ideas inconsistent with the final product. The Defendants argument that such inconsistent ideas must be made public because they are inconsistent with the final determination is exactly In fact, revealing only these documents would be a distortion because Lead Plaintiffs have not relied upon the documents underlying the OFHEO reports in moving and opposing summary judgment.
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Tellingly, Defendants do not identify the inconsistency. A review of the documents reveals that there is no inconsistency. 4
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contrary to the purposes of the protection and simply cannot be the basis for overriding the protection. The consequences of public exposure of pre-decisional federal agency information could be compared to the consequences of requiring a court to reveal draft memorandum opinions, or the courts notes from the bench, or the law clerks notes. An early draft opinion could be substantially different than the final. Indeed, the writer may have changed his decision entirely, and the final opinion could contain an outcome that is the opposite of an earlier draft. Making such information public would surely affect the inner workings of the court certainly not in a positive way. With knowledge that the public or parties to a case might see draft decisions and notes, judges and their staff might, for example, be reluctant to take notes or to change their opinions substantially from their first impressions. The same is true of the inner workings of a federal agency, whose staff are people and who have the same fear of humiliation and the same aversion to criticism of their pre-decisional drafts, notes, opinions, jokes, and comments.

III.

None of the Documents At Issue Are Already Public Documents. Although the Defendants repeatedly argue that the sum and substance of the documents

at issue is already public, the documents at issue have not been made public. The Defendants assertion, even if it is true, that public documents contain some of the same facts or topics as the documents at issue does not negate the fact that the documents at issue are not public. The Defendants essentially admit that there are documents already in the public domain upon which the Defendants can and do rely to support their arguments with respect to OFHEO. The fact that the Defendants rely on documents already made public to make their arguments regarding OFHEO defeats their argument to make public the documents at issue. Consequently, there is no cause to override FHFAs legitimate interests in keeping these documents redacted or sealed. 5
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For example, Defendants seek to publicly file materials related to the HUD-OIG investigation. Dkt. 1010 at 12-13. A copy of the HUD-OIG report has already been made public.5 That report details information on the same topics as the HUD-OIG investigation materials at issue.6 The Defendants contend that [t]he sum and substance of what the OFHEO employees testified to HUD-OIG is contained within the publicly available HUD-OIG Report. Dkt. 1010 at 13. But these documents go one step further and reveal the identities and testimony of OFHEO personnel involved in these issues. These documents should be redacted or sealed for the reasons argued in FHFAs Motion for a Protective Order. The Defendants have failed to show how the HUD-OIG investigation materials provide any information necessary to their arguments that has not already been made public in the HUD-OIG report itself. Indeed, the Defendants appear to argue that the report provides what they need, and the Defendants offer no cause to override the FHFAs interest in keeping the HUD-OIG investigation materials confidential.

IV.

Judge Sullivans Decision Is Inapposite. The Defendants made multiple attempts to apply a recent decision of Judge Sullivan in an

unrelated criminal matter to this case. There, Judge Sullivan denied two motions to seal the report of a court-ordered investigation into prosecutorial misconduct. In re Special Proceedings, 2012 U.S. Dist. LEXIS 15656, at *2-4. The report undermined the criminal trial and conviction of a U.S. Senator and exposed misconduct by federal prosecutors: Despite Defendants implication to the contrary (Dkt. 1010 at 11-12), the HUD-OIG report was not originally released to the public by the HUD-OIG. The report was originally made available to the public on the website of Congressman Barney Frank, and after it was picked up by the media it was taken down from the Congressional website.
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The materials at issue appear behind Tab Numbers 14-17, 18-19, 21, and 23. 6

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Mr. Schuelkes five-hundred-page Report concludes that the investigation and prosecution of Senator Stevens were permeated by the systematic concealment of significant exculpatory evidence which would have independently corroborated [his] defense and his testimony, and seriously damaged the testimony and credibility of the governments key witness. In re Special Proceedings, 2012 U.S. Dist. LEXIS 15656, at *6. That decision is inapposite to FHFAs motion for a protective order. Judge Sullivans decision to publicly release a report describing an investigation into prosecutorial misconduct is a wholly different kind of decision from the one that this Court must decide on FHFAs Motion for a Protective Order. That decision resulted in the release of the investigation reportnot all of the underlying interview transcripts and documents obtained during the investigation. Here, the HUD-OIG report is already public, but the documents at issue are interview transcripts and documents that were obtained during the investigation. Moreover, FHFA articulated valid bases for keeping these documents sealed or redacted.

V.

Conclusion While the Defendants argue that the public has a right to know the information sought to

be protected by FHFA, their true intention is to use the powers and process of this Court to do their bidding for their own personal public relations purposes. Defendants can offer these documents as evidence in their case. The Court may determine at trial whether some or all of this information is admissible and whether it should ultimately be released to the public in open court. The Defendants agree that public information exists to support their arguments without the need for the documents the Agency seeks to protect. The Defendants used all of the documents at issue in support of their summary judgment briefing and filed all of these documents under seal. Accordingly, the Defendants have provided no reason to override

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FHFAs legitimate interest in keeping these documents redacted or sealed, and FHFAs motion for a protective order should be granted.

Dated: March 8, 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 Office of General Counsel Constitution Center 400 Seventh Street, S.W. Washington, D.C. 20024 Phone: (202) 649-3053 Fax: (202) 777-1208 Attorneys for the Federal Housing Finance Agency

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