The attorneys for three former Fannie Mae executives were in court today trying to convince a federal judge to let them depose a government official that they argued would help them prove that their clients were victims of biased regulators.
The lawyers are defending allegations by investors that Fannie’s executives harmed their company’s stock price by approving illegal accounting techniques, which later came to light in a report by their regulator. They say the testimony could bolster their argument that Fannie’s regulator at the time, the Office of Federal Housing Enterprise Oversight, made a politically motivated effort to drive down the company’s stock price in order to make it easier to control.
The witness, Corinne Russell, was an employee in OFHEO’s office of external relations. According to lawyers for the former executives — chief executive Franklin Raines, chief financial officer Timothy Howard, and controller Leanne Spencer — Russell was ordered to leak word of the report criticizing Fannie’s accounting practices to the news media, causing its stock value to tumble.
Fannie was forced to restate billions of dollars in earnings after the OFHEO report, which was first released in 2004. Since at least 2007, lawyers for Fannie’s executives have said that OFHEO’s chief was “fatally biased.”
Whether Russell would testify about the role of her office turned controversial last month, when lawyers for OFHEO asked the judge to stop her deposition. They argued it was unnecessary because defense lawyers had already deposed her boss, Peter Brereton.
Today, defense lawyers told Judge Richard Leon of the U.S. District Court for the District of Columbia that Brereton had been a problematic witness, insisting on more than 200 occasions that he could not remember key events or policies.
“What we’re really talking about her are the bona fides of the report,” said Mayer Brown partner David Krakoff, who represents Spencer. “Is the report invalid because it was produced by people who were biased against our client?” Williams & Connolly partner Alex Romain, who represents Raines, and Zuckerman Spaeder partner Eric Delinsky, who represents Howard, made similar arguments.
Duane Morris partner Joseph Aronica, representing OFHEO’s successor, the Federal Housing Finance Agency, said the possible leak was “a figment of [the defense’s] imagination.”
“Let’s get serious,” Aronica said. “Even if there were evidence of a leak, so what? What does this have to do with the essence of what this case is about.”
By the end of the hearing, however, Leon seemed ready to let the deposition move forward.
“If I were Mr. Aronica, I would set aside a little time in my schedule to prepare for a deposition,” he said.