Raines Tries To Broaden Defense in Fannie Suit
Monday, September 17, 2007
Former Fannie Mae chairman Franklin D. Raines is trying to draw the White House into his defense against a shareholder lawsuit alleging that he and the government-sponsored mortgage funding company misled investors when Fannie Mae overstated earnings by billions of dollars.
Raines has subpoenaed the White House for any records that would show it was behind a regulatory investigation that found problems with Fannie Mae's accounting and gave rise to the shareholder claims, the White House said in court papers filed last week.
The federal government said Raines was on "a fishing expedition through the files of the President," and it asked the court to quash the subpoenas.
Raines, who was President Bill Clinton's budget director, was one of the Washington area's most prominent executives until late 2004, when regulators accused Fannie Mae of ignoring accounting requirements and pushed him into retirement. In addition to battling investors, Raines is fighting efforts by the Office of Federal Housing Enterprise Oversight to recover $84.6 million it says he received in Fannie Mae compensation, plus penalties.
Raines's clash with the Bush administration is part of his escalating campaign to clear his name. He recently asked a federal judge to hold OFHEO in contempt of court for allegedly failing to search its records thoroughly enough for documents that might be useful in his defense.
In a court filing last week, the agency took a position similar to that of the White House, arguing that Raines was asking it to undertake "a costly 'fishing expedition' into ever vaster stretches of sterile sea." The agency, which has an annual budget of $66.1 million, said part of the disputed search process -- looking for e-mails on backup tapes dating to 2002 -- would cost more than $9 million.
Raines alleged that OFHEO falsely assured the U.S. District Court for the District of Columbia that it had turned over all relevant records when the agency had not searched certain backup tapes. OFHEO countered that it had told Raines the parameters of its search and Raines did not object.
Raines's subpoena of the White House, along with a second served on the Office of Management and Budget, was issued in July and made public through a White House court filing last week. Both subpoenas seek information Raines could use to challenge OFHEO's impartiality.
In a July letter to the OMB, Kevin M. Downey, a lawyer for Raines, said he has reason to believe that OMB officials communicated with OFHEO about the examination of Fannie Mae's accounting.
"These communications, which bear on the conduct and conclusions of OFHEO's special examination, are relevant to Mr. Raines's defense," Downey wrote.
The White House court filing suggested that Raines was trying to show that the administration was out to get Fannie Mae. "Mr. Raines believes the Executive Office of the President forced the special examination and coerced OFHEO into producing a critical report," the filing said.
Even if true, the White House argued in the filing, that is irrelevant to Raines's defense against investors' claims, because Raines's liability will hinge on the facts about Fannie Mae's accounting.