Sunlight Foundation Reporting Group

Financial Bailout: Fannie Mae announces subpoena

Fannie Mae announced <a href="http://sec.gov/Archives/edgar/data/310522/000129993308004533/0001299933-08-004533.txt">today</a> that it's gotten more subpoenas from the SEC and the U.S. Attorney for the Southern District of New York:

<blockquote>On September 26, 2008, Fannie Mae received notice of ongoing federal government investigations and inquiries into Fannie Mae by the United States Attorney for the Southern District of New York and the United States Securities and Exchange Commission ("SEC") regarding certain accounting, disclosure and corporate governance matters. In connection with those investigations and inquiries, Fannie Mae received a Grand Jury subpoena for documents from the Southern District of New York and a request for preservation of documents related to the inquiry from the Staff of the SEC. Fannie Mae expects to receive requests for documents from the staff of the SEC.

The Company intends to cooperate fully with these investigations and inquiries.</blockquote>

Of course a lot has changed at Fannie Mae since it was taken over by Treasury, but nevertheless the last line reminded me of the last effort to investigate Fannie Mae -- undertaken by the <a href="http://www.ofheo.gov">Office of Federal Housing Enterprise Oversight</a>, an independent entity within the Department of Housing and Urban Development that, it says <a href="http://www.ofheo.gov/about.aspx">here</a>, "works to ensure the capital adequacy and financial safety and soundness of two housing government-sponsored enterprises (GSEs) -- Fannie Mae and Freddie Mac." OFHEO uncovered Fannie Mae's <a href="http://www.ofheo.gov/media/pdf/fnmserelease.pdf">bad accounting practices</a> after a two year investigation in 2006.

One of the interesting bits in the release, elaborated on in the <a href="http://www.ofheo.gov/media/pdf/FNMSPECIALEXAM.PDF">full report</a> (warning: it's a big file; start on page 273) concerns Fannie Mae's use of lobbyists to try to upend the investigation:

<blockquote>Fannie Mae senior management sought to interfere with OFHEO's special examination by directing the Enterprise's lobbyists to use their ties to Congressional staff to 1) generate a Congressional request for the Inspector General of the Department of Housing and Urban Development (HUD) to investigate OFHEO's conduct of that examination and 2) insert into an appropriations bill language that would reduce the agency's appropriations until the Director of OFHEO was replaced.</blockquote>

The full report goes into more detail, noting a close resemblance of the language of a letter sent by a member of Congress, Sen. Christopher Bond, R-Mo, to HUD's inspector general requesting an investigation: "OFHEO found a draft of the Congressional request letter on Fannie Mae's computer system that was nearly identical to the request letter that was ultimately sent to the HUD Inspector General. That draft is dated April 15, 2004, almost two weeks before the actual request letter was sent."

Bond <a href="http://bond.senate.gov/atwork/recordtopic.cfm?id=228166">said</a> that by investigating Fannie Mae, OFHEO officials "misused their agency and abused the public trust." We could have used a bit more abuse over the last few years...