House ethics probe to investigate whether Finance committee withheld records

By Carol D. Leonnig and R. Jeffrey Smith
Washington Post Staff Writers
Thursday, December 2, 2010; 7:56 PM

House ethics investigators have begun a probe into why the powerful House Financial Services Committee did not fully comply with its promise to turn over all documents pertinent to an investigation of subcommittee chairwoman Maxine Waters (D-Calif.), according to congressional staff and other sources close to the inquiry.

After wrapping up their ethics investigation of Waters this summer and preparing for trial in October, the investigators learned about an e-mail that they considered important to their examination of Waters's efforts to help a troubled bank tied to her husband.

Four officials, congressional staff members, and others familiar with the probe confirmed on Thursday that her trial was postponed two weeks ago in part to explore the delay in not turning over that e-mail and to examine whether other evidence was withheld.

The action is part of an overall broadening of the Waters inquiry by the committee to look more deeply at her office's interactions with senior aides to the committee's chairman, Rep. Barney Frank (D-Mass.), on legislation meant to help the bank, according to the sources.

Some committee members are concerned that the Waters investigative team did not have access to all the records, in part because they did not press for them diligently enough. Others on the staff have expressed concern that evidence may have been inappropriately withheld.

The e-mail in question, sent by Waters chief of staff Mikael Moore, asked four aides to Frank for more information on the progress of legislation meant to rescue large banks in the 2008 financial meltdown. The top aide, who is Waters's grandson, proposed legislative wording changes that ultimately ensured the minority-owned bank in which Waters's husband had a financial investment, OneUnited, received federal assistance.

In August, the committee released a report stating that there was reason to believe Waters had acted improperly to help OneUnited, and that her actions gave the public reason to doubt her intregrity and objectivity. The committee's investigation continued, however. Waters has said she did nothing wrong and was only trying to assist all minority-owned banks.

The e-mail surfaced because investigators started interviewing a former Frank aide, John Hughes, in September. They asked him at the time if he had any relevant documents, and he reported that he did not. But then they asked him in October to be a witness at Waters's trial, and when he checked again for documents, he found the e-mail and turned it over, according to a source close to Hughes.

Hughes, who now works for House Majority Leader Steny Hoyer (D-Md.), "has complied fully with the Ethics Committee's request for information related to his previous service," said Hoyer's spokesman Katie Grant.

Frank previously has said he inserted the legislative provision discussed in the e-mail partly to help OneUnited, which was then in grave financial trouble due to the abrupt devaluation of its stock in federally chartered mortgage lenders. He fended off a potential ethics committee subpoena of his committee and its staff, the sources said, by promising voluntary cooperation. The committee later certified that it had turned over all relevant documents.

Frank said on Tuesday that the concern about late-arriving documents is news to him.

"When I received the Ethics Committee's 2009 request, I instructed my staff to turn over every document in personal office and committee files. I have every reason to believe they did that," Frank said yesterday.

The House ethics committee, called the Committee on Standards of Official Conduct, did not respond to requests for comment Tuesday. But deputy chief ethics counsel C. Morgan Kim and three colleagues said in a memo to the committee members last month that they believe the e-mail "may have a material impact on the investigative subcommittee's investigation and the resulting statement of alleged violations."

They suggested as a result that the trial be postponed so that the special subcommittee appointed to investigate Waters could resume its work, a proposal that the sources said was accepted.

The ethics committee has made clear in its public charges that it considers the role of Moore in the OneUnited matter critical in evaluating whether Waters violated House ethics rules. In the Sept. 28, 2008, e-mail, which he sent just two hours before House Speaker Nancy Pelosi (D-Calif.) unveiled the TARP legislation, Moore insisted that he be kept apprised of "the status of the provisions that we have been working on" related to minority-owned banks.

He also suggested changing the wording of the legislation to make clear it authorized "financial" assistance to such banks. Shortly after its approval, OneUnited applied for and received a multimillion dollar loan, and bank regulators later said they approved the funds primarily because of that wording.

Waters - the most senior black lawmaker on the Financial Services Committee - has maintained that she arranged a meeting for OneUnited with Treasury officials as part of an effort to help minority-owned banks in general. She told the ethics investigators that after the meeting, she removed herself from the effort to help that particular bank, citing the conflict.

But the four-member investigative subcommittee found that Moore remained "actively involved in assisting OneUnited representatives with their request for capital from Treasury."

Waters and Moore have both described his role as benign, and like her own efforts, aimed at helping all such banks.

© 2010 The Washington Post Company