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Treasury Official “Misled” a Federal Court About Net Worth Sweep Timing

A U.S. Treasury Department “veteran” bureaucrat misled a federal court three years when he stated that “the government did not know Fannie Mae and Freddie Mac were about to return to profitability,” according to a recent article in the New York Post based on legal documents in the Fairholme trial.

The veteran bureaucrat in the story is Mario Ugoletti, who shifted from Treasury to the Federal Housing Finance Agency and played a key role in creating the Preferred Stock Purchase Agreements, which were later amended to become the Net Worth Sweep. (Read our blog from July 27th, which raised questions about whether or not Ugoletti was acting appropriately while at FHFA).

The Post article says that Ugoletti’s “sworn statement” on Dec. 17, 2013, in which he is denying FHFA and Treasury knew the GSEs were about to turn profitable, is contradicted by others. The article highlights the coincidental timing of events:

“More than a year earlier, when losses at the two companies were forecast far into the future, the government moved to sweep any possible future Fannie and Freddie profits into Treasury’s coffers.

“But just weeks after the sweep, both Fannie and Freddie returned to profitability — and now lawyers for Fairholme, citing recently uncovered evidence, claim the official was not being honest.”

… “The FHFA’s Ugoletti, in a sworn statement to the federal court on Dec. 17, 2013, denied that the FHFA and Treasury knew accounting losses would soon be reversed when the sweep occurred.

“But Susan McFarland, the Fannie chief financial officer who was there in 2012 when the decisions were made, disputes Ugoletti’s statements, Fairholme lawyers said in their Aug. 19 filing.”

Government lawyers who have been fighting against transparency by demanding that thousands of documents turned over in the discovery phase remain under seal clearly want people to believe that it was just a coincidence that weeks after the Sweep was enacted, the companies happened to become profitable.

And it’s not only shareholders who are demanding to know the truth.  The New York Times filed a motion with Judge Margaret Sweeney asserting its right to intervene in the discovery process as a news organization on behalf of the public stating that the government has failed to show good cause for the continued confidentiality of the documents.

Earlier this month, Judge Sweeney ruled that it’s too early in the discovery process of the Fairholme case to decide whether to lift the protected designation on these thousands of documents federal government attorneys are trying to keep hidden from the public.  Her ruling, which came after an attorneys-only, closed-door session, continued discovery through the end of this year.

So, discovery into communications between Treasury officials – specifically about who knew what and when before the decision to enact the profit sweep was made – will continue, and that’s a huge victory for transparency and the rule of law.  We don’t know what is in these communications, but the fact that more than fifteen government lawyers were present in a courtroom on a Friday before Labor Day to hear Judge Sweeny’s ruling on whether to unseal them is probably an indication that they’re a great read.