The Waters Outside Counsel and the September 9, 2008 Treasury Meeting

To begin unpacking the report of Outside Counsel Billy Martin on the matter of Representative Maxine Waters, I will start with the meeting that took place on September 9, 2008 at the Treasury Department. This meeting is key to understanding the events that took place, and the evidence is very clear as to what transpired. Yet for some reason Outside Counsel seems more interested in obscuring than in illuminating these facts.

The September 9 meeting was memorialized in this one-page memorandum dated that same day and sent by Erika Jeffers, a House Financial Services Committee counsel, to Chairman Barney Frank.

The memo begins by identifying the participants in the meeting. In addition to Jeffers, present were Mikael Moore, Waters’ chief of staff, a staffer from Senator Kerry’s office, and representatives of four federal agencies (FDIC, OCC, OTS and the Federal Reserve). There were also four non-government participants consisting of Kevin Cohee, the chairman and CEO of OneUnited Bank (OU), Robert Cooper, Senior Counsel of OU, a third OU official, and a lawyer with Goodwin Proctor. Cooper at the time was also the chair-elect of the National Bankers Association, a trade organization representing more than 100 minority-owned banks, and he was the then-current chair of NBA’s Legislative Committee. The Goodwin Proctor attorney was identified in the memo as representing NBA, but he also did work for OU, and there is no evidence to indicate that he communicated with anyone outside of OU with regard to the meeting. There were no participants from any bank other than OU.

The rest of the memo consists of two paragraphs. The first paragraph is titled “One United Bank” and it states that OU has about $50 million in GSE preferred shares (equally divided between stock in Freddie Mac and Fannie Mae). It then relates that “Bob Cooper asked Treasury to buy back the preferred GSE stock of [minority banks] that may otherwise fail due to overexposure from preferred GSE stock.” The OU representatives made clear that their bank was in that category, noting that OU “is now functioning with effectively no capital” and “argu[ing] that it was in serious danger of failing if Treasury decides not to offer some sort of protection of buy-back to it.” In short, the OU representatives wanted Treasury to buy the bank’s GSE shares for $50 million (far more than they were worth at the time).

The second paragraph is entitled “Other Minority-Owned Financial Institutions.” Jeffers explains: “Although Bob Cooper has framed the problem of having significant exposure of preferred GSE stock as one that is, or could be, affecting the solvency of other [minority banks], it is unclear to me whether the[re] are any other [minority banks] that are facing the same capital situation as One United right now.” She notes that Cooper was “vague” when asked about the scope of the problem with respect to other minority banks. She also observes that the FDIC staff “seemed skeptical” that this was a widespread problem among minority banks.

In the final sentence of the memo, Jeffers states: “Although initially, Bob [Cooper] and Kevin [Cohee] indicated that the problem facing [minority banks] would likely be solved with $100 million buy-back from the affected institutions, at the close of the meeting, they mentioned a lower amount of $75 million.” Thus, despite OU’s “framing” of the problem as one affecting minority banks generally, its own estimate was that OU’s funding need was a full two-thirds of the total amount that would be required, or twice as much as all other minority banks put together.

Not only is there little reason to question the accuracy of this memo, it is consistent with all of the other evidence in the record regarding this meeting. Although the Outside Counsel focuses on minor discrepancies in the witnesses’ recollections of the meeting (such as the exact percentage of time spent discussing OU), all of the witnesses agreed that a substantial portion of the meeting was devoted to discussing OU’s situation and more specifically its desire/request for Treasury to buy back its GSE stock for $50 million. No one testified that any other minority bank was specifically named as having a similar problem.

Outside Counsel curiously concludes that “[w]hile recollections of the meeting attendees varied, no witness believed the meeting was called specifically on behalf of OneUnited, but rather it appeared to be a meeting to discuss the conservatorship on minority banks in general (sic).” Report at 67; see also id. at 88 (“no one testified that the meeting was called solely for OneUnited.”)

A more accurate summary of the evidence would be that although the meeting was ostensibly called to discuss the situation of minority banks in general, OU clearly sought the meeting for the primary, if not sole, purpose of discussing OU’s situation in particular. Thus, while OU representatives may or may not have assumed or hoped that some other minority banks would benefit from any bailout they could obtain from Treasury, any such consideration was secondary at best.

In addition to the Jeffers memo and the testimony of the participants, this conclusion is supported by the following evidence:

  • The meeting was arranged by Representative Waters at the request of OU officials Cohee and Cooper, who separately met with her on September 8 to stress the urgency of the situation
  • Although Cooper was the “chair-elect” of NBA and purported to be acting on its behalf, neither the actual chair of NBA nor any other officer if the organization was involved in (or aware of) the meeting request
  • When Cooper initially wrote to Waters on August 22, 2008, raising concerns about the exposure of minority banks to GSE stock, he did not copy any other NBA officers or representatives of minority banks, nor did he mention any other minority banks that would be affected by the problem
  • The same is true for a letter Cooper wrote to Treasury Secretary Paulson on September 6, 2008. This letter was on NBA, rather than OU, stationery, and it presented the problem as an industry-wide issue, but no other banks were copied on (or apparently aware of) the letter.
  • The President of NBA, whose “primary responsibility is to advocate on behalf of the NBA to Members of Congress, the Executive Branch, and regulatory agencies” (see Report at 71), was not told about the meeting or invited to attend and, when he found out about it several months later, asked why he had not been consulted. Report at 88.
  • Although the OU officials “framed the problem,” both before and during the September 9 meeting, as one with widespread impact on minority banks, it does not appear that they had any evidence that this was the case, and within a few days of the meeting they acknowledged that only one other minority bank would be significantly affected.
  • The OU officials did not invite representatives of any other minority bank to attend the September 9 meeting, even though there were NBA members located in the Washington D. C. area
  • The regulators who participated in the September 9 meeting expressed surprise that they had been asked to participate in such a meeting when the issue concerned a handful of banks at most, suggesting they felt the meeting had been called under false pretenses
  • When Paulson, who had set up the meeting at Waters’ request, was told that OU had been the only bank represented at the meeting, he telephoned Waters to express his surprise and disappointment

The only reasonable reading of these facts is that the OU officials knew that their chances of getting high-level consideration of their bailout request would be much less if they acknowledged that the problem was limited to a few banks (much less one bank) that had made the unwise business decision to concentrate their portfolios in GSE stock. Not only would this acknowledgment reduce the perceived need for action by Treasury, it would undercut OU’s argument that minority banks in particular had been duped into believing the GSEs were a safe investment.

The most charitable interpretation is that OU managed to avoid determining the scope of the problem until it could have its meeting with the Treasury Department; a less charitable one would be that it deliberately exaggerated or misrepresented the facts to advance its strategy.

Outside Counsel declined to reach any conclusion on this point, merely acknowledging “concerns that OneUnited’s officers were not completely honest,” but contending that this issue was beyond the scope of its mandate. Report at 83 n. 380. Even more surprisingly, it repeatedly cites the fact that NBA, months later after there was adverse publicity about the meeting, adopted a resolution expressing the view that Cooper’s actions were “consistent with practices and authority granted to him by this Association.” Id. at 79, 88. What relevance Outside Counsel sees in this after-the-fact show of solidarity is unclear, but it would take a considerable amount of credulity to suggest that it proves Cooper was “really” acting on behalf of minority banks in general when he sought the Treasury meeting.

As I will explain in future posts, pretending that the September 9 meeting was something other than what it was—an attempt by OU officials to obtain a bailout for their bank—distorts the legal and factual analysis of this matter.



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