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Federal Judge Puts Gov’t On Notice: No Hiding Behind Privilege in Fairholme Lawsuit

August 26, 2014

It’s never good to upset a federal judge. But the government’s lawyers in the Fairholme case managed to do just that in trying to convince U.S. Federal Claims Court Judge Margaret M. Sweeney that she should just, you know, trust them to produce self-incriminating documents.

“Defendant asserts that the court should merely take its word that the documents – some of which defendant itself has not reviewed – are privileged. That is contrary to law,” Judge Sweeney wrote in her decision ordering the U.S. Treasury Department to produce documents that could shed light on the decision to violate the rule of law regarding Fannie Mae and Freddie Mac shareholders.

The issue is that the government is heavily redacting key information before releasing documents claiming privilege under the deliberative process that allows government employees the freedom to discuss policies and actions without fear of every word being released publicly. Under some circumstances, this is OK – national security, sensitive military operations, etc. But when it comes to government bureaucrats deciding to illegally sweep up all the profits from private investors, those conversations should not be hidden from the public.

The Washington Times picked up on this theme in an article that takes on the greater issue of administration secrecy:

The ruling means discovery in the case can continue, though there’s still a protective motion in place, so it’s unclear when or whether documents will be made public. Still, government watchdogs cheered the ruling, saying it represented an important push back against a tool in the administration’s increasingly use of the exemption to try to keep embarrassing information secret.

“Theft is not privileged,” Tim Pagliara, head of shareholders group Investors Unite, said in a statement after the ruling. “Investors deserve to know when the U.S. Treasury knew that Fannie and Freddie would become profitable and how that factored into the decision-making process.”

Tim Pagliara isn’t the only investor pressing for the administration to turn over the documents: Recently Nicholas Isbell, one of the hundreds of Fannie and Freddie investors recently wrote a letter to President Obama explaining just how harmful the government’s illegal decisions are:

“By way of background, I am an ordinary American who was raised to believe in this country’s values and government; I am not a Wall Street tycoon or some other caricature. It is very important to me to be able to provide my daughter with the same higher education opportunities that I am confident you and the First Lady envision for your daughters. Sadly, however, I fear that my plans in this regard are being undermined by my government’s hostile stance towards Fannie Mae and Freddie Mac shareholders, as reflected in the actions of the Treasury Department and FHFA.

“I am truly at a loss to understand the seeming governmental vindictiveness towards GSE investors such as myself. Why are we singled out for financial punishment? I am a law abiding citizen who plays by the rules. I invested in Fannie Mae, many years ago, because I believed in both the organization’s mission and the long term financial prospects; I still do.”

In the coming months, investors will continue to voice their outrage over the violation of their shareholder rights. Average Americans responded to the call to invest in Fannie and Freddie as a way to strengthen the housing market. Yes, they hoped for a return on that investment – after all, that’s why you invest and is a clear benefit of doing so wisely in the marketplace. Mr. Isbell made an investment that he hoped would return enough for his daughter to be able to attend the college she wants to, not the one she might be financially limited to. Yet the government’s response to entreaties like this is to clam up, refuse to turn over documents and try to hide behind privilege. Thankfully Judge Sweeney has denied this action and is enabling the investigation to continue.

There’s still no timeframe on when the documents will go public but, thanks to Judge Sweeney’s ruling, the government is on notice that it cannot hide behind dubious claims of privilege and that it should expect to explain its actions that are harming average Americans.