Attorneys on both sides of a securities fraud class action against Fannie Mae sparred today over former U.S. Securities and Exchange Commission Chairman Harvey Pitt's decision to cut short his own deposition late last week.
Judge Richard Leon of the U.S. District Court for the District of Columbia called Pitt's walk-out "unusual," as deponents typically do not call the shots. Leon will consider a motion to dismiss Pitt as an expert witness, or else compel him to continue testifying, on Friday morning.
Fannie Mae and its auditor, KPMG, were sued in 2005 by the attorney general of Ohio on behalf of that state’s pension plans after the federal agency regulating Fannie Mae found that the mortgage giant had overstated profits and failed to comply with other generally accepted accounting principles. Fannie Mae restated its earnings at billions less than it had before, opening the door to a class action from anyone who bought Fannie Mae stock between 2001 and 2004.
Pitt, who served as SEC chairman from 2001 and 2003 and is now CEO of Washington, D.C.-based consulting firm Kalorama Partners, was testifying as an expert witness for the plaintiffs on SEC oversight practices and on a 2004 SEC order that Fannie Mae restate its finances.
Alex Romain of Williams & Connolly, an attorney for several former Fannie Mae officials named in the suit, told Leon that when he asked Pitt about 2009 deposition testimony by Donald Nicolaisen, the former SEC chief accountant who had ordered Fannie Mae to restate its finances, Pitt said he didn’t know that Nicolaisen had testified.
At that point, according to Romain, Pitt told attorneys he could no longer answer questions because he didn’t know what Nicolaisen had said and how that testimony might affect his opinion. Prior to the deposition, Pitt had submitted a 45-page, single-spaced expert report.
The defense filed a motion to either dismiss Pitt as an expert, arguing it would be unfair to allow a redo after the defense committed time and resources to analyzing his opinion, or else order him to continue with the deposition and bar him from changing his original report; he was given materials on Nicolaisen's testimony after the deposition.
Stanley Chesley of Cincinnati's Waite, Schneider, Bayless & Chesley, the class lead counsel, argued that attorneys for the defense mishandled the deposition. Chesley read an excerpt of Pitt’s testimony – from before the deposition was suspended – in which the former SEC head said he found the procedure “troubling” and was “not able to finish a good portion of sentences.”
Chesley told Leon that Pitt is traveling in Colorado, but that he would try to get him back in town on Friday in case Leon orders Pitt to continue with the deposition.