The Whiffs on Discovery Story

A story today from linked directly to a presentation to Treasury made by Blackstone Advisors in 2011.  The story attributed Investors Unite as the source of the document, which we recently received from an investor.

The story focused on potential for conflict of interest in Blackstone serving as an advisor to Treasury (never mind the fact that Blackstone Advisors is a completely separate entity from Blackstone’s investment firm). 

Here’s what the story left out:  The 2011 presentation is a great example of the exact sort of document that is likely to come out in the discovery process that was just granted to plaintiffs in the case of Fairholme v. The United States.

Discovery will produce thousands of documents like this one, and, not only documents, but also emails and records of conversations reflecting the thinking and intent of Treasury officials.  All of this will help determine what the government knew, when it knew it and how this factored into the decision to enact the illegal Third Amendment Sweep of 100% of Fannie and Freddie profits.

Investors Unite welcomes this process, and we’re eager to find out whether or not it yields insight into whether the Sweep was an accidental confiscation (did Treasury know the entities would be wildly profitable?) or an intentional one. 

Not surprisingly, Treasury diminished the document’s importance in its interview with  “Treasury did not issue a request for proposals, and no contract was awarded,” said an unnamed Treasury spokesperson.

Here are some questions we think arise from this story and from Treasury’s continued obfuscation about what it knew and when:

1)     If this was an unsolicited pitch, as Treasury claims, then why wasn’t it with FHFA?  Better yet, why was Treasury taking the meeting with Blackstone in the first place?  We would surmise it is because Treasury was calling the shots, and not FHFA, which is actually the entity prescribed by HERA statute as the official conservator of the GSEs. 

2)     Treasury claims there was no request for proposals.  Did Treasury enact the Third Amendment sweep without seeking any outside input or advice?

3)     What other presentations like the one Blackstone made to Treasury were given to Treasury?  And why wasn’t the Blackstone presentation (or other ones like it) made part of the Administrative Record? 

These questions will hopefully be answered in the discovery process.  Investors deserve to know.