Inner City Press / Fair Finance Watch filed with the Federal Reserve Board in Washington, and the Federal Reserve Bank of New York, a complaint and request under the Freedom of Information Act, portions of which follow:
March 15, 2008
By fax to DC and NY (Copied for the real lawyers out there)
Board of Governors of the Federal Reserve System
Attn: Chairman Ben Bernanke, and Secretary & FOIA Officer
20th St and Constitution Ave, N.W. Washington, DC 20551
Re: Petition, Challenge and Freedom of Information Request Regarding the FRS' Communications with, Consideration and Authorization of JPMorgan Chase (with its affiliates, "Applicants") to lend to, do due diligence on and prospectively acquire Bear Stearns (with its affiliates, "Target")
Dear Chairman Bernanke and others in the FRS:
On behalf of Inner City Press/Community on the Move and its members and affiliates, and the Fair Finance Watch (collectively, "ICP"), this is a petition, challenge and request under the Freedom of Information Act (5 U.S.C. § 552; "FOIA") regarding the Federal Reserve System's (the "FRS'") communications with, consideration and authorization of JPMorgan Chase (with its affiliates, "Applicants") to lend to, do due diligence on and prospectively acquire Bear Stearns (with its affiliates, "Target").
First, ICP formally challenges at the earliest time possible the FRB's approval on March 14 without public notice or comment of an indirect bailout of Bear Stearns, which is not a Bank Holding Company and does not own a bank, through JPMorgan Chase as anti-competitive, contrary to the public interest, a violation of the FRB's duties and, by the way, entirely illegal.
The FRB's claimed power to lend to a non-depository corporation like Bear Stearns in "unusual and exigent circumstances" generally requires "the affirmative vote of not less than five members." Even 12 U.S.C. Section 248(r)(2)(A)(ii)(III) and (IV), mandates a finding that "action on the matter is required before the number of Board members otherwise required to vote on the matter can be contacted through any available means (including all available telephonic, telegraphic, and other electronic means)." There has been no showing that, given technology in 2008 (as opposed to the 1930s when this language was enacted), the required attempts to contact Gov. Mishkin were made -- that "despite the use of all means available (including all available telephonic, telegraphic, and other electronic means), the other members of the Board have not been able to be contacted on the matter." The Fed's March 14 actions were unlawful, and must be rescinded. (Only 4 members voted)
Second, 12 U.S.C. Section 248(r)(2)(A)(iii) requires that "any credit extended by a Federal reserve bank pursuant to such action is payable upon demand of the Board." But already it is speculated that the FRS may not be paid back.
Third, to allow this relation between the nation's third largest bank and fifth largest brokerage, without any antitrust review, even with the required votes which the FRB did not have, is unlawful. The FRB has no authority to pre-approve any prospective acquisition of Bear Stearns by JPMorgan Chase, which some in the financial press predict for as early as March 17. This formal petition, faxed to the FRB on March 15, requests that JPMorgan Chase and Bear Stearns be informed forthwith that any proposed combination would require prior public notice and, ICP is requesting, public hearings.
Fourth, 12 U.S.C. Section 248(r)(2)(A)(ii) required the Board -- including Gov. Mishkin, see supra -- to find that
(I) unusual and exigent circumstances exist and the borrower is unable to secure adequate credit accommodations from other sources; and
(II) action on the matter is necessary to prevent, correct, or mitigate serious harm to the economy or the stability of the financial system of the United States;
But Bear Stearns got in trouble due to reckless enabling of predatory mortgage lending which is imperiling consumers and communities. To offer a bailout to a perpetrator and enabler -- particularly but not only while doing very little for the victims of these practices, many of whom face imminent foreclosure -- only encourages further predatory lending, (qv Moral hazard) contrary to the public interest findings required by 12 U.S.C. Section 248(r)(2)(A)(ii)(II).
Fifth, serious questions are raised by Bear Stearns Chief Executive Alan Schwartz having not disclosed Bear's financial condition, including in an interview earlier in the week on CNBC. While the FRB may claim that it does not regulate Bear Stearns, in light of the unseemly bailout, the FRB has a responsibility to inquire in and act on these presumptive violations by Bear Stearns and its senior management and board. Additionally, Bear Stearns' barring of the broadcast to investors of its March 14 conference call, reportedly on the claim that it was covered by copyright, presumptively violated Regulation FD.
This is also a request under the FOIA for all records reflecting communications involving Federal Reserve System ("FRS") personnel to, from or about the above-named companies or their affiliates since January 1, 2008, and, specifically, for all documents related to the findings and communications required by 12 U.S.C. Section 248(r)(2)(B), mandating that the Board
"shall document in writing the determinations required by subparagraph (A)(ii), and such written findings shall be included in the record of the action and in the official minutes of the Board, and copies of such record shall be provided as soon as practicable to the members of the Board who were not available to participate in the action and to the Chairman of the Committee on Banking, Housing, and Urban Affairs of the Senate and to the Chairman of the Committee on Financial Services of the House of Representatives."
In this regard, ICP reminds the Board that in 1998 after its ex parte communications with Citicorp and Travelers, it affirmatively disclosed what had been said to whom, and when. No less, and in fact more, is required in this case.
As to Exemption 4, consider JPM Chase and Bear Stearns were / would have been required to provide the Board with this information. Therefore, this information must be disclosed under FOIA unless such disclosure would: (1) impair the Board's ability to obtain necessary information in the future; or (2) cause substantial harm to the banks' competitive position. Since neither of these two tests can be met, the withheld information must be released.
Since the Applicant was, in context, "obliged" to provide the Board with the information contained in these Exhibits, that information can only be withheld if disclosure would likely: "(1) impair the Government's ability to obtain necessary information in the future; or (2) cause substantial harm to the competitive position of the person from whom the information was obtained." Critical Mass Energy Project v. Nuclear Regulatory Comm'n, 975 F.2d 871, 878, 880 (D.C. Cir. 1992); National Parks and Conservation Ass'n v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974). [legal argumentation omitted in this format.] If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
The Food and Drug Administration stated yesterday that a contaminant - over-sulfated chondroitin sulfate, a substance derived from animal cartilage, found in recalled batches of the blood-thinner heparin was deliberately altered in a way that mimicked the real substance.
