california ag kamala harris' petition to enforce investigative interrogatories- fannie mae, freddie...

8/3/2019 CALIFORNIA AG KAMALA HARRIS' PETITION TO ENFORCE INVESTIGATIVE INTERROGATORIES- FANNIE MAE, FREDDIE MAC

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KerrrareD.HennrsAttorneyGeneral f CaliforniaMeRrw H. GoyBrrpSeniorAssistantAttornevGeneralFrunrnrcrW. Acrnn (SiateBarNo.208109)Ntcrres A. Arnns (StateBarNo. 2T1222)Arrv C. TnNc StateBarNo. 228133)DeputyAttorneysGeneral455GoldenGateAve.,Suite11000SanFrancisco, A 94102Telephone:415) 03-5505Fax: (415) 03-5480E-mail:nicklas,[email protected] PetitionerThePeopleof theStateof California

Pnopr,noF THESr.lrB oF CALTFoRNTAxnnr,.KA]vIALA . Hlnnrs, ArronNnyGnNnnal oF THESrarn oFCALIFoRNTA.

Exempt romFilingFeesPursuanto Gov.Codeg6103

e'ffi.SUPERIOR OURTOFTHE STATEOFCALIFORNIA

CITY AND COLINTYOF SAN FRANCISCO

Fnnrnc.L Houn Lolx MonrcacnConronerroN,

Petitioner.

caseNoCPF - 1 I - 5 I 1T TzPETITION TO ENFORCEINVESTIGATIVE INTERROGATORIES[Gov.Code $1 180et seq.; 2659]

Respondent.

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PETITIONTO ENFORCE NVESTIGATIVE NTERROGATORIES


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Petitioners he Peopleof the Stateof California, ex rel. Kamala D. Harris, Attorney Generalof the Stateof California,allegeas ollows:

INtnooucrroN1. This is an action to require answers o a set of fifty-one investigative interrogatories

(the INVESTIGATIVE INTERROGATORIES) issuedby the Attorney Generalof the StateofCalifornia to the FederalHome Loan Mortgage Corporation(FREDDIE MAC) as part of herongoing investigationof the mortgageand foreclosurecrisis facing California.

2. The Attomey General is the chief law officer of the State of California. She isresponsible or enforcing the state's criminal, consumerprotection, and securities aws, and sheexercisessupervision over the state's sheriffs and district attorneys. She also regularly makeslegislative and policy recommendations o the California Legislature,and she has the authority topromulgate regulations in a variety of areas. In order to carry out these duties effectively,California law gives the Attomey General broad investigative powers-including the right toissue subpoenas nd nvestigative nterrogatories.

3. FREDDIE MAC is a private corporation chartered by Congress. Like othercorporations, t has shareholders, board of directors,and a CEO. Its stock s publicly traded.lFREDDIE MAC and its counterpart, the Federal National Mortgage Association (FANNIEMAE), collectivelyown over 60% of the mortgagesn Califomia.

4. The mortgage and foreclosure crisis has had a devastating mpact on the people ofCalifornia. From January,2007, through June,201 , 768,330 esidentialmortgageshave beenforeclosedupon in California. Foreclosuresnot only affect the families who lose their homes,butalsothe safety,health and welfare of the entirecommunity.

'FREDDIE MAC's common stock, icker synbol FMCC, is currently radedon the OTCBulletin Board. FREDDIE MAC's stock was de-listed rom the New York Stock Exchangeandthe Chicago Stock Exchange on July 8, 2010. FREDDIE MAC had 649,722,580 haresofconrmonstockoutstanding s of September 0, 2011.



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5. Foreclosedhomes createnumerousproblems in California. For example,abandonedproperties often become venues or a wide range of criminal activity, including prostitution anddrug trafficking.

6. Foreclosed homes also create health and safety issues such as fires caused byovergrown yards or neglectedgas and electrical connections(often damagedby metal thieves).Such fires areparticularlyhazardous n high-densityurban areaswhere fires can spreadquickly tonearby buildings, and in communities that are vulnerable to wildfires. Vacant properties alsocreate opportunities for infestation by rats and vermin and can become dumping grounds forconstructiondebris and garbage.

7. Studies by FANNIE MAE and others dernonstrate hat the very presenceof vacanthomes n a neighborhood significantly affects the value of the remaining properties, educing thevalue of other homeson the block by thousandsof dollars each.

8. Improper foreclosurepractices can violate the rights of Californians, including thosewho serve n the armed forces, or who are membersof racial, ethnic or religious minorities.

9. In addition o owning thousands f foreclosedhomes n California,FREDDIE MACissuednumeroussecuritiesmarketed and underwrittenby a wide range of parties-and purchasedby Californians. Many of those securities are now virtually worthless, and there have beenseriousaccusations f fraud in connectionwith them. Most recently, the Securitiesand ExchangeCommission (SEC) charged ormer FREDDIE MAC senior executiveswith securities raud andentered nto a non-prosecution agreementwith FREDDIE MAC pursuant to which FREDDIEMAC doesnot contesta Statementof Facts about ts deceptiveand misleadingpublic statements.

10. In light of its central role in the mortgage and foreclosure crisis, FREDDIE MAC hasextensive information that is critical to the Attorney General's investigation. The AttorneyGeneral herefore ssued he INVESTIGATIVE INTERROGATORIES to FREDDIE MAC. TheINVESTIGATIVE INTbRROGATORIES ask questions hat are critical to protecting the health,safety and welfare of California residentsand enforcing California law of generalapplicability.Specifically, the Attorney General seeks nformation concerning:

PETITIONTO ENFORCE NIVESTIGATIVE NTERROGATORIES


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o Criminal activity such as drug dealing and prostitution at foreclosedhomes owned byFREDDIE MAC;

o Compliance of FREDDIE MAC's loan servicers and property managers with civilrights laws and laws protecting members of our armed forces against unlawful eviction orforeclosure;

. Compliancewith California securities aws;

. Compliance with California tax laws; ando The presenceof toxic materials,explosives, weaponsor ammunition, overgrown brush

or other fire hazards,mosquito-filled pools, or other threats.to health and safety at FREDDIEMAC's foreclosed ropertiesn California.

11. Despite the fact that the Attorney General has authority to issue theINVESTIGATIVE INTERROGATORIES, FREDDIE MAC has failed and refused o provideany of the information requestedby the Attorney General. The People hereforerequestan ordercompellingFREDDIE MAC to answer he INVESTIGATIVE INTERROGATORIES.

Tnn P.q.nrrns12. Petitioner amalaD. Harris s the AttorneyGeneral f the State f California, nd

was so at all relevant times. Shebrings this action solely in her official capacity on behalf of thePeopleof the Stateof California.

13. Respondent REDDIE MAC is an investor-owned orporation hat doesbusinessnCalifornia. It has shareholders, irectors and a CEO. Its stock is publicly traded. FREDDIEMAC's charter expresslyprovides that it can be sued n state court. On Septernber ,2008,FREDDIE MAC's regulator, the Federal Housing Finance Authority, placed FREDDIE MACinto a temporary conservatorship. However, FREDDIE MAC remains a private corporation andcontinuesas an ongoing businessas t did before the conservatorship.



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TnnArronNnyGrxnR r,'s lNvnsrtc,rrrvr Aurnonrry14. The Attorney General is the State's chief law enforcement officer. She has broad

authority under the California Constitution, statute,and common law to bring actionsto enforcethe laws of the state and to protect public rights and interests. She has direct authority toinvestigate and prosecutecrimes, and she supervisesCalifornia's district attorneys,sheriffs, andother state and ocal law enforcementagencies.

15. The Attorney General s empowered o bring actions to enforce a panoply of statutesrelating to civil rights, environmentalprotection, fraud, unfair businesspractices,and a range ofother subjects. She also has ndependentauthority to investigateand prosecutemisconduct n theoffer and sale of securities. Additionally, she has the authority to promulgate regulations in anumber of subject matter areas, ncluding regulations concerning the electronic recordation ofdocuments elated o land ownership.

16. To aid her in enforcing these statutes, he Attomey General possesses road powersunder California GovernmentCode sections 11180 et seq. and 12659 o, among other things,issue subpoenas,promulgate interrogatories, and inspect books and records. The AttomeyGeneralmay use thesepowers for various reasons, ncluding assistingher in consideringpossibleprosecutorial actions, proposing legislation, and formulating enforcement policies with otheragencies.

17. The Attorney General's investigative powers are not dependenton the initiation of acivil law suit or an administrative proceeding. The Attorney General has broad discretion andmay investigatebased on suspicion hat the law is being violated or to determine hat it is not. Ifa party disobeys a subpoenaor set of investigatory interrogatories, the Attomey General maypetition the SuperiorCourt for enforcement.

Tnn ArronNnvGnxnnal's NvnsrrclrroN or tnr Monrcacn.rNo Fonrcr,osunnCrusts18. On May 23,2011, the Attorney Generalannounced he creationof a MortgageFraud

Strike Force within the Department of Justice to investigate all aspects of the mortgage and

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foreclosurecrisis facing California, from the origination of mortgage oans to the managementofforeclosed roperties.

19. The Strike For'ce is tasked with determining whether laws have been violated,evaluating whether civil or criminal prosecutionsare warranted, and making recommendationsconceming any necessary egislation and regulation. The Strike Force also helps formulateenforcement policies within the Department of Justice and in coordination with other federal,stateand ocal agencies o respond o the currentcrisis.

20. The Attorney General haspropounded nvestigative subpoenasand interrogatories oa number of witnesses, ncluding FREDDIE MAC, that have information or documents elevantto the investigation.

TUB INvnsrrcettvn INrrnRocltoRlBs21. The INVESTIGATIVE INTERROGATORIES propounded o FREDDIE MAC seek

information on core police power issues, ncluding the protection of the public safety, health,welfare and morals. The information sought by the INVESTIGATIVE INTERROGATORIESwill provide critical assistance o the Attorney General in answering questions such as thefollowing:

a. Are crimes such as drug dealing and prostitution occurring in the thousandsofforeclosedCaliforniahomesownedby FREDDIE MAC?

b. Are toxic materials, explosives, firehazards, mosquito-filled pools, or other dangersto the health or safety of Californians present at foreclosed homes owned byFREDDIE MAC?

c. How should state and local law enforcement and regulatory agenciesaddress heproblems posedby foreclosedproperties? How should they coordinate hose effortswith other agencies, ncluding federal aw enforcementandregulatory agencies?

d. Are taxesbeingpaid on foreclosed omesowned by FREDDIE MAC in compliancewith California aw, as expressly uthorizedby 12 U.S.C.$ la52(e)?

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e. Have military families, ncludingmernbers f the CaliforniaNationalGuard,beenillegally foreclosed ponor evictedby loan servicers r propertymanagers?

f. Did brokers,underwriters,ormercorporate fficials, or othersviolateCalifornia'ssecurities aws in connectionwith the marketingor sale of securities ssuedbyFREDDIE MAC, particularly n light of the SEC's chargesagainst FREDDIEMAC's formerexecutives nd he facts ecited n FREDDIEMAC'S non-prosecutionagreement ith theSEC?

g. Did loanservicers, ropertymanagers,ttorneys, r othersmake alsestatementsoCalifornia state courts, county recorders,or other officials in connectionwithforeclosures,victions,or otheractionsor proceedings overned y Californiastatelaw?

h. Have oanservicers, ropertymanagers, r others iolatedCaliforniacivil rights awsin connection ith foreclosures,victions, r theservicingof loans?

i. Are legalor regulatory eformsneededo addressheharmfuleffectsof foreclosureson Californiacommunities r to fix the oreclosure rocess?

22. A true and conect copyof the INVESTIGATIVE INTERROGATORIESs attachedheretoasExhibit A.

23. On November 5,2011,he NVESTIGATIVE NTERROGATORIESereproperlyserved n FREDDIEMAC. A true andcorrectcopy of theproofof service s attached eretoasExhibitB.

Fnrporn M.lc's REFusA.r,o ANSwER rn INrBRRocA,roRrns24. FREDDIEMAC has ailed o answerhe NVESTIGATIVE NTERROGATORIES.25. On November28, 201I, two Deputy Attorneys General rom the MortgageFraud

Strike Force spoke with counsel for FREDDIE MAC's conservator to discuss theINVESTIGATIVE INTERROGATORIES. The Strike Force attorneysansweredall of theconservator'suestions, greed erbally o narrow he scopeof certain equests, ndvolunteeredto work cooperatively ith FREDDIEMAC and ts conservator.

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26. On December9,2011, the conservator's utsidecounsel sent a letter to one of theStrike Force attorneys,a true and correct copy of which is attached as Exhibit C. The letterdernands hat the Attomey General withdraw the INVESTIGATIVE INTERROGATORIES, andasserts hat "no state Attorney General has the authority to issue an administrative subpoenaorinvestigative interrogatories o IFREDDIE MAC], and no court may compel a response o suchinterrogatories."

27. The conservator'sposition is incorrect. No law exempts FREDDIE MAC fromresponding to the Attorney General's INVESTIGATIVE INTERROGATORIES. Theconservator contends that federal law preempts the Attorney General from issuing theINVESTIGATIVE INTERROGATORIES. but none of the authorities cited bv the conservatorsupport his position.

28. For example, he conservator epeatedly cites the federal visitorial powers doctrine insupport of its preemption claims. However, the visitorial powers doctrine is a creatureof statute,and by its terms appliesonly to nationalbanks. (12 U.S.C. $ a8a(a) ['No nationalbank shall besubject to any visitorial powers exceptas authorizedby Federal aw . . . ."1.) FREDDIE MACis not a national bank. It is therefore not covered by the visitorial powers doctrine. Moreover,there is no analogousprohibition on the state exerciseof visitorial powers in any of the statutesgoverningFREDDIE MAC.

29. Additionally, the conservator'spreemption argumentrelies on a faulty premise - thatthe Attorney General s attempting to "regulate" FREDDIE MAC. She is not. She is gatheringinformation by posing questions o a percipient witness.

30. The conservator also claims that its own governing legislation bars the AttorneyGeneral from investigating i/. But the INVESTIGATIVE INTERROGATORIES are notaddressed o the conservator. They.are addressed o FREDDIE MAC and only seek nformationfrom FREDDIE MAC. FREDDIE MAC is not a govenrmentalagency and did not become oneby virtue of being placed in a temporary conservatorship. It is a private corporation and itsrecords emainprivate corporate ecords.

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31. Further, eal propertyownedby FREDDIE MAC is "subject o State, erritorial,county, municipal,or local taxation to the same extent according o its value as other realpropertys taxed." (12U.S.C.$ 1a52(e).)NeitherFREDDIEMAC nor ts conservatorxplainswhy the AttorneyGeneralcannot nvestigatewhetherCalifomia taxeshavebeenpaidon theseproperties.

32. More generally,FREDDIE MAC and its conservator o not explainwhy they arefrustratinghe AttorneyGeneral's fforts o investigate ndcombat rime,blight andother hreatsto the healthandsafetyof Californians. t is theAttorneyGeneral andnot FREDDIEMAC orits conservator who has the primary duty to abatepublic nuisancesand investigateandprosecuterimescommitted t foreclosed ropertiesn California.33. Finally, the conservator contends that answering the INVESTIGATIVEINTERROGATORIES ould mposean undueburdenon FREDDIEMAC. As notedabove, heAttorney General'sStrike Force has already expressedts willingness to cooperatewithFREDDIEMAC to address ny concernsegarding urdensomeness.oreover,FREDDIEMACis an extremely arge enterprise, ot a "mom and pop" company. It has more than 5,200employees,ssets f 52,261,780,000,000,ndannual dministrativexpensesf $1,546,000,000.It is well within FREDDIE MAC's ability to answer hese nterrogatories,which call forinformationasstraightforwardsa ist of theproperties wnedby FREDDIEMAC in California.

Tnrs Counr's Aurnonrrv to Ononn CoNrpr,r.tNcnwrrH rHn INrnRRocA.roRrns34. GovernmentCode section 11187provides hat if a witnesshas failed and refused o

answer nvestigative interrogatories, he head of the department ssuing the interrogatoriesmaypetition the Superior Court for an order compelling compliance. That section further providesthat a proceeding,such as this one, brought by the Attorney General or other appropriateofficialshall be the sole vehicle for determining he validity of any objections o the interrogatories.



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Pnayrn ron Rrr,rnrPursuanto Government ode ections 1187and 2659,theAttorneyGeneral rayshat

thisCourt:l. Issuean orderdirectingFREDDIEMAC to appear efore hisCourtand o showcausewhy it has efusedo complywith the INVESTIGATIVE NTERROGATORIESnd,upon

FREDDIEMAC's failure o showcause, nteranorderdirecting REDDIEMAC to givecomplete,esponsivendverifiedanswerso the NVESTIGATIVEINTERROGATORIES;nd

2. Award he People uchotherand urther elief the Courtdeemsust,properandequitable,ncluding ll costs llowed y law.

Dated:December 1.ZOtt Respectfullyubmitted,Kevnra D.HennrsAttorneyGeneralf CaliforniaMenrnqH.GoyrrrsSenior ssistant ttornevGeneralFnnorRrcrW. crnnAMY C. TENcDeputy Attorneys General'-2t 2A,/NrcrresA. ArEnsDeputyAttorneyGeneralAttorneys or PetitionerThe Peopleof the Stateof California

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PETITIONTO ENFORCE}.IVESTIGATIVENTERROGATORIES

california ag kamala harris' petition to enforce investigative interrogatories- fannie mae, freddie...

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