Today, Grover Norquist and I are calling for an investigation into Rahm Emanuel’s activities at Freddie Mac, and the White House’s blocking of an Inspector General who would look into it. The letter follows:
December 23, 2009
Attorney General of the United States of America
U.S. Department of Justice
950 Pennsylvania Avenue, NW
Washington, DC 20530-0001
Dear Attorney General Holder:
We write to demand an immediate investigation into the activities of White House Chief of Staff Rahm Emanuel. We believe there is an abundant public record which establishes that the actions of the White House have blocked any investigation into his activities while on the board of Freddie Mac from 2000-2001, and facilitated the cover up of potential malfeasance until the 10-year statute of limitations has run out.
The purpose of this letter is to connect the dots to establish both the conduct of Mr. Emanuel and those working with him to thwart inquiry, and to support your acting speedily so that the statute of limitations does not run out before the Justice Department is able to empanel a grand jury.
The New York Times reports that the administration is negotiating to double the commitments to Fannie and Freddie for a total of $800 billion by December 31, in order to avoid the congressional approval that would be needed after that date. But there currently is no Inspector General exercising independent oversight of these entities. Acting Inspector General Ed Kelly was stripped of his authority earlier this year by the Justice Department, relying on a loophole in a bill Mr. Emanuel cosponsored and pushed through Congress shortly before he left for the White House. This effectively ended Mr. Kelly’s investigation into what happened at Fannie and Freddie.
Since that time, despite multiple warnings by Congress that having no independent Inspector General for a federal agency that oversees $6 trillion in mortgages is a serious oversight, the White House has not appointed one.
We recognize that these are extremely serious accusations, but the stonewalling by Mr. Emanuel and the White House has left us with no other redress. A 2003 report by Freddie Mac’s regulator indicated that Freddie Mac executives had informed the board of their intention to misstate the earnings to insure their own bonuses during the time Mr. Emanuel was a director. But the White House refused to comply with a Freedom of Information Act request from the Chicago Tribune for those board minutes on the grounds that Freddie Mac was a “commercial” entity, even though it was wholly owned by the government at the time the request was made.
If the Treasury approves the $800 billion commitment to Fannie and Freddie by the end of the year, it will mean that under the influence of Rahm Emanuel, the White House is moving a trillion-dollar slush fund into corruption-riddled companies with no oversight in place. This will allow Fannie and Freddie to continue to purchase more toxic assets from banks, acting as a back-door increase of the TARP without congressional approval.
Before the White House commits any more money to Fannie and Freddie, we call on the Public Integrity Section in the Justice Department to begin an investigation into the cause of Fannie and Freddie’s conservatorship, into Rahm Emanuel’s activities on the board of Freddie Mac (including any violations of his fiduciary duties to shareholders), into the decision-making behind the continued vacancy of Fannie and Freddie’s Inspector General post, and into potential public corruption by Rahm Emanuel in connection with his time in Congress, in the White House, and on the board of Freddie Mac.
We also call for the immediate appointment of an Inspector General with a complete remit to go after this information.
We both come from differing political ideologies. One of us is the conservative head of a transparency foundation, and the other is the publisher of a liberal political blog. But we make common cause today out of grave concern for the future of our country in the wake of corruption-riddled bailouts. These bailouts continue to rob Main Street to benefit Wall Street, and, because of that, we together demand the resignation of Mr. Emanuel, a man who has steadfastly worked to obstruct both oversight and inquiry into the matter. Rahm Emanuel’s conflicts of interest render him far too compromised to serve as gatekeeper to the President of the United States.
We will lay out the details further below, and are available at your earliest convenience to meet with you directly.
(Additional background information after the jump.)
Rahm Emanuel was appointed to the board of Freddie Mac in February of 2000 by Bill Clinton, after serving as White House political director where he was a vocal defender of Mr. Clinton during the Monica Lewinski matter. He served there until leaving to run for Congress in 2001, which qualified him for $380,000 in stock and options and a $20,000 annual fee.
According to the Chicago Tribune, during his tenure the board was notified by executives of their plans to misstate the earnings of Freddie Mac: “On Emanuel’s watch, the board was told by executives of a plan to use accounting tricks to mislead shareholders about outsize profits the government-chartered firm was then reaping from risky investments. The goal was to push earnings onto the books in future years, ensuring that Freddie Mac would appear profitable on paper for years to come and helping maximize annual bonuses for company brass.” (3/5/2009)
The Tribune further reported that “during his brief time on the board, the company hatched a plan to enhance its political muscle. That scheme, also reviewed by the board, led to a record $3.8 million fine from the Federal Election Commission for illegally using corporate resources to host fundraisers for politicians. Emanuel was the beneficiary of one of those parties after he left the board and ran in 2002 for a seat in Congress from the North Side of Chicago.”
In December 2003, a report (PDF) was written by Armando Falcon Jr., head of the entity charged with oversight of Freddie Mac, the Office of Federal Housing Enterprise Oversight (OFHEO). The report asserts that company executives “demanded whatever level of earnings management was necessary to achieve steady rapid growth in Enterprise profits.” It also “provided evidence that non-executive members of the Board were aware, and supportive of, management in this regard, including the use of derivatives to improperly manage the earnings of Freddie Mac,” citing notes from a June 2, 2000 meeting of the Board of Directors (p. 24).
The OFHEO report concluded that board had “failed in its duty to follow up on matters brought to its attention.” The SEC filed a complaint (PDF) saying that Freddie Mac had “misreported profits by billions of dollars in order to deceive investors between the years of 2000 and 2002,” per ABC News.
In Congress, Rahm Emanuel worked to pass a bailout of Fannie and Freddie, cosponsoring the Housing and Economic Recovery Act of 2008, which also dissolved OFHEO. It moved their regulatory authority to the Federal Housing Finance Agency (FHFA), which took Fannie and Freddie under conservatorship in September 2008. The same act abolished the Federal Housing Finance Board (FHFB) and replaced it with the FHFA.
After Mr. Emanuel was named Chief of Staff, the White House denied a Chicago Tribune Freedom of Information Act request for information on his Freddie Mac activities: “The Obama administration rejected a Tribune request under the Freedom of Information Act to review Freddie Mac board minutes and correspondence during Emanuel’s time as a director. The documents, obtained by Falcon for his investigation, were “commercial information” exempt from disclosure, according to a lawyer for the Federal Housing Finance Agency.” However, at the time of the request Freddie Mac was no longer a “commercial” enterprise, having been taken over by the government in September of 2008.
According to ABC News, the Justice Department is in possession of these records, yet no indictments have been forthcoming: “Freddie Mac records have been subpoenaed by the Justice Department as part of its investigation of the suspect accounting procedures” they reported in November 2008.
When the OFHEO and the FHFB were abolished, FHFB employees were automatically transferred to the FHFA and retained their “same status, tenure, grade, and pay.” Ed Kelly, who had been the Inspector General for the FHFB, was looking into the wrongdoing of Fannie and Freddie at the FHFB when the Justice Department, using the authority of the 2008 law Emanuel cosponsored, stripped him of Inspector General authority and removed him from oversight of Fannie and Freddie.
The Huffington Post obtained copies of an internal memo (PDF) on the ruling by the Justice Department’s Office of Legal Counsel. They report that “the ruling came in response to a request from the Federal Housing Finance Agency itself — which means that a federal agency essentially succeeded in getting rid of its own inspector general.”
The memo states that “Congress did not intend for the FHFA to have an Acting or interim IG pending the confirmation of a PAS IG.” But according to the Huffington Post, “the chairmen of the House and Senate banking committees, Rep. Barney Frank (D-Mass.) and Sen. Chris Dodd (D-Conn.), both told HuffPost that Congress had no intention whatsoever of revoking Kelley’s authority to operate as an IG.”
According to Neil Barofsky, the Special Inspector General overseeing the TARP bank bailout: “It’s a serious gap in oversight,” Barofsky told HuffPost of Ed Kelley’s loss. “It does impact what we do. Ed was a member of our TARP IG council and a partner in our investigative work.” Barofsky said he still investigates areas of FHFA, but his mandate only covers “a sliver of what they do.”
The Huffington Post further reports that it is the White House’s failure to appoint an Inspector General that has stalled the process: “Federal Housing Finance Agency officials insist that they notified Congress about the problem and pressed the Obama administration “multiple times” to appoint someone to the position tasked with rooting out wrongdoing at Fannie Mae, Freddie Mac and the Federal Home Loan Bank,” they report.
I addition to his role as White House Chief of Staff, Mr. Emanuel is heavily involved in decisions made by the Treasury Department . The Wall Street Journal reported in May that “Rahm wants it” has become an unofficial mantra in the Department. It is therefore of grave concern that the New York Times reports the Treasury is negotiating to increase their commitment to Fannie and Freddie, in the absence of independent oversight: “Fannie Mae and Freddie Mac, which buy and resell mortgages, have used $112 billion — including $15 billion for Fannie in November — of a total $400 billion pledge from the Treasury. Now, according to people close to the talks, officials are discussing the possibility of increasing that commitment, possibly to $400 billion for each company, by year-end, after which the Treasury would need Congressional approval to extend it. Company and government officials declined to comment.”