‘Friends of the Court’ Have Hidden Ties to Big Investors

Responding to concerns that well-funded litigants were using amicus briefs to try to stack the deck, federal appeals courts in 2010 began requiring amici to disclose if a party in the case wrote their briefs or if anyone was paying them. The Supreme Court has required the same since 1997.

But the National Black Chamber filing in the Piszel case and others in Fannie and Freddie shareholder suits show how easy it is for amici to avoid disclosing financial ties without violating court rules.

Timothy Howard, a former Fannie Mae CFO, sought to appear as an amicus supporting separate shareholder cases brought by Berkowitz’s firm and by money manager Gary Hindes. Howard says in the briefs that he wants to offer his “unique perspective.” He doesn’t mention that he had been previously paid for consulting work by Berkowitz’s firm.

In an email, Howard said his work for Fairholme was limited to one visit to the firm in March 2015 that wasn’t connected to the briefs, which were filed months later. For each brief, shareholders’ counsel recruited Howard and connected him with a lawyer who prepared the document. He said he believes these lawyers were paid for their work, but he doesn’t know by whom. The lawyers didn’t respond to inquiries.

Another friend of the court is the Association of Mortgage Investors, created in 2010 to represent owners of mortgage securities. Its board, previously dominated by mortgage investors, expanded in 2015 to include a member of Paulson’s hedge fund, tax filings show. The same year, the association filed an amicus brief in the U.S. Court of Appeals for the District of Columbia Circuit supporting the suit by Fairholme and other shareholders.

The lawyer who submitted the brief, Thomas Vartanian, had previously worked for Paulson. He recruited a more prominent group, Independent Community Bankers of America, to sign on. Paulson’s name doesn’t appear anywhere on the brief.

The ICBA said the brief aligns with its members’ views. Vartanian didn’t respond to inquiries. Chris Katopis, executive director of the Association of Mortgage Investors, said his group has always supported investor rights and wouldn’t say whether Paulson had a role in creating the brief. Paulson declined to comment.

“I don’t think the conspiracy theory holds up,” Katopis said. “The story is why did the Obama Treasury neglect the rights of investors and everyday Americans?”

National Black Chamber

Three more briefs came from nonprofits with a history of advocating for causes aligned with corporate donors. One was the Center for Individual Freedom, formed by the tobacco industry in 1998 to fight smoking regulations and now a booster for a variety of corporate causes. Another was the 60 Plus Association, dubbed a “gun-for-hire” by watchdog Citizens for Responsibility and Ethics in Washington.

“To question our motives, as some do, fails to address the substance of the policy arguments,” Jim Martin, 60 Plus’s chairman, said in an email. The center didn’t respond to inquiries.

The third group was the National Black Chamber of Commerce. It filed a brief in the D.C. Circuit shareholder case, citing a concern that Fannie and Freddie would be liquidated. Such a result “will destroy the housing market for minorities and will have a devastating impact on the overall U.S. economy,” the brief said. Although the group stated it wasn’t taking sides, it repeated a talking point frequently used by the shareholders.

The chamber, which often champions conservative causes, didn’t always value Fannie and Freddie so highly. In a 2011 statement published on the group’s website, founder and President Harry Alford blamed them for the financial crisis and asked: “Is it time to close down these two institutions?”

Alford declined to comment on the amicus briefs. “I won’t speak to you because I may get things twisted, since my memory of this has pretty much faded away,” he said in an email.

The National Black Chamber gets almost all of its money from gifts, contributions and grants, many from undisclosed parties, rather than membership dues, according to a 2014 tax filing, the most recent available. It has been criticized by environmental groups for taking positions that align with those of donors such as Exxon Mobil Corp., which voluntarily disclosed its support.

The chamber’s amicus brief in the Piszel case says no one paid for the group’s participation. LeGrand, the only person to sign the document, said she didn’t independently verify that statement.

Cooper Kirk’s Thompson said his firm worked for the chamber pro bono. And he said its authorship of the brief didn’t need to be disclosed because the firm wasn’t counsel to a party in the case. “Our involvement was in full compliance with the disclosure requirements,” Thompson said.

Despite the law firm’s efforts, the Federal Circuit judges ruled 3-0 against Piszel in August 2016, finding that the government’s action didn’t amount to an illegal taking. But part of the opinion aligned with the chamber’s argument, and its impact on the shareholder cases remains unclear.

Six months later, in the most consequential decision so far, the D.C. Circuit ruled 2-1 against the shareholders, finding that Treasury’s decision to capture the companies’ profits didn’t overstep its authority under a 2008 bailout law.

At least, the mortgage group’s brief made an impression. In her dissent, Circuit Judge Janice Brown quoted from it approvingly.

Fannie and Freddie investors will probably seek a review by the Supreme Court. It’s a fair bet the high court will soon be hearing from more “friends.”

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