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T ROBERT ZOCHOWSKI JR
•NOT ADMITTED TO THE NEW YORK BAR
December 14, 201 0
By Federal Express
Gary J. Cohen, Esq.
General Counsel
Financial Crisis Inquiry Commission
1717 Pennsylvania Avenue, NW
Suite 800
Washington, DC 20006-4614
Financial Crisis Inqui1y Comnusslo/1 ("FCIC" or "CommissiOn")
Dear Gary:
We represent Citigroup Inc. ("Citi" or the "Company") in connection with
the Commission's inquiry. In our November 17, 2010 letter (the "November 17 Letter")
to the Commission, we objected to the publication of certain Citi-related confidential
documents and the public release of recorded Citi witness interviews. We emphasized
that these materials contain highly confidential non-public infonnation, and that the
Commission had represented to us that it intended to tape record its interviews of Citi
witnesses solely as an aid in drafting its final report.
The Commission has since made available to us the Citi witness interview
materials it plans to release to the public. These materials include Citi witness interview
summaries, audio files, and transcripts. We have had an opportunity preliminarily to
review these materials and, as an initial matter, reaffirm the objections made in the
November 17 letter. Further, we now object to the publication of any FCIC interview
PAUL, WEISS, RIFKIND, WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
2
"summaries" and, to the extent these summaries are published, to the publication of any
confidential information contained within these summaries along with confidential
information contained within FCIC interview transcripts and interview tape recordings
for any Citi witnesses.
Aside from accurate infom1ation or quotes that the Commission relics on
and references in its final report, none of these materials are appropriate for disclosure by
the FCIC to the public. As the Commission is undoubtedly aware, the Company faces
significant shareholder and related litigation conceming many of the issues explored
during the interviews. There is no apparent purpose for the disclosure of interview
summaries, transcripts, or tape recordings other than to assist the plaintiffs' bar in
litigation against Citigroup. In particular, the Commission's plan to release its interview
summaries-which have been drafted misleadingly to resemble transcripts even though
they are derived from the notes of the overworked Commission staff and are replete with
inaccuracies and mistakes-is irresponsible, prejudicial, unfair, and indeed
unprofessional.
Release of Tape-Recorded Interviews. As stated in our November I 7
letter, the Commission represented to us, prior to tape recording the witness interviews,
that it was tape recording these interviews solely to aid the Commission in drafting its
report. Had we been made aware that the Commission intended to release the tape
recordings to the public, we would have objected and demanded a revised interview
schedule.
The FCIC repeatedly assured witnesses of the confidential nature of its
interviews. For instance:
•
In the FCIC's March 18, 2010 interview ofCiti witness Jeffrey Perlowitz,
Mr. Perlowitz was confused about the Commission's apparent policy to
require him to keep the interview confidential even though the
Commission could use statements made by him in its final report. Donna
Norman responded to Mr. Perlowitz's concems by stating that "[iJn
general, federal agencies, such as ourselves and other regulators, do
conduct their investigations on a confidential hasis to protect those that
we are speaking to as well as others. So I think you'll find there's no
hidden agenda here." (Audio File of Jeffrey Perlowitz's Interview at
3:20-4:55.) Ms. Nom1an reiterated these representations at the end of Mr.
Perlowitz's interview. (!d. at 1:42:04-1 :42:27.)
•
In the FCIC's March 16, 2010 interview of Mickey Bhatia, Ms. Nom1an
stated that "while one of our missions is to hopefully make public some
views on ... the underlying causes of the financial crisis, our investigation
work is confidential, so we would ask that you not share the fact of or
PAUL, WEISS, RIFKIND. WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
3
substance of this interview with anyone other than your counsel." (Audio
File of Mickey Bhatia's Interview at 2:08:24-2:08:46.)
These representations are consistent with the Commission's
representations-made prior to the tape recording of Citi witness interviews- that it
would keep the recordings confidential and release only those statements that it published
in its final report. The Commission did not disclose that it intended to release publicly all
of the tapes that it created as part of a purported effort to create an "oral history" of the
financial crisis. We respectfully request that the Commission honor its representations
made prior to, and during, the interviews and treat as confidential all recordings of Citi
interviews.
Release of FCIC Interview Summaries. As of November 17, we were
unaware that the Commission planned to publish interview summaries for those
interviews that were not otherwise recorded. We now understand that the Commission
plans to publish such summaries; we vigorously object to their planned release.
It would be inappropriate for the Commission to publish its interview
summaries for several reasons. As an initial matter, the Commission staff drafted the
summaries in such a manner as to mimic the fonn of a transcript. Indeed, the vast
majority ofthe summaries are written in the first person, which makes it appear as if the
witnesses actually made the comments reflected in the summaries. The summaries,
however, are manifestly sloppy and riddled with inaccuracies and misstatements. They
are far from a verbatim report of the questions and answers stated during the interviews;
to suggest otherwise is affim1atively misleading. We further note that only a handful of
the summaries contain a disclaimer expressly stating that the summary is not a verbatim
transcript of the interview. This approach is all the more objectionable because the
summaries contain numerous inaccuracies, both as to the facts and because they often
omit nuances, important complexities or the relevant context that fom1ed part of each
witness's responses to the Commission's questions.
For example, and solely by way of illustration:
•
The summary of Janice Warne's interview indicates that she answered
"no" to the question of whether a disclosure was made to investors about
the decision to structure additional COOs after February 2007, whereas
Ms. Warne said she did not recall if such a disclosure was made.
(Interview Summary of Janice Warne at 9.)
•
The summary of James Ryan's and John Schachtel 's interview indicates
that Mr. Ryan said that CitiFinancial's goal was to "grow the business, but
focused on a particular segment of customers," whereas Mr. Ryan in fact
stated that the goal was not focused on a particular segment of customers.
(Interview Summary of James Ryan & John Schachtel at 14.)
PAUL, WEISS, RIFKIND, WHARTON 8 GARRISON LLP
Gary J. Cohen, Esq.
4
•
The summary of Lloyd Brown's interview indicates that Mr. Brown stated
that HMDA "will indicate the rate ofthe borrower and the location of the
mortgage," whereas Mr. Brown said that it would indicate the race of the
borrower. (Interview Summary of Lloyd Brown at 13.)
•
The summary of Ed Abufaris's and Tony Tenore's interview indicates that
Mr. Bondi asked Mr. Tenore whether there were "reports or documents
from 2000 to 2006 that would break down the prime, subprime, and AltA," and that Mr. Tenore replied "[n]o, not that I'm aware of," whereas
Mr. Tenore in fact explained, in response to the question, that loans,
though not categorized, were viewed as a full credit package. (Interview
Summary of Ed Abufaris & Tony Tenore at 7.)
In addition, the summary indicates that Mr. Bondi asked the question,
"Did you blacklist Morgan Dean or First Franklin?" (/d. at 6.) We
believe Mr. Bondi's question, and Mr. Tenore's answer, concemed a
mortgage originator named Taylor, Bean & Whitaker (commonly known
as Taylor Bean), not "Morgan Dean."
•
The summary of Matthew Bolio's interview indicates that Peter Steinmetz
attended that interview, which he did not. (Interview Summary of Matt
Bollo at 1.)
In addition, the summary indicates that Mr. Bolio said, "For example, a
co-borrower's missing signature is not material." (ld. at 4.) This sentence
does not accurately reflect Mr. Bolio's answer. Mr. Bolio did not say that
missing the signature of a co-borrower is immaterial as a rule. Instead, he
gave a detailed answer about the range of issues that could be encountered
during due diligence, and he suggested that a missing signature on one
document among dozens might not cause Citi to reject a loan, depending
on the context.
Similarly, in connection with a discussion of a "client profile" requested
by one of Citi 's due diligence vendors, the summary indicates that Mr.
Bolio said, "It [the client profile] told front-line underwriters that Citi
doesn't care as much about a minor document." (!d. at 7.) Mr. Bolio did
not make this statement or any similar statement. Instead, he discussed
how the client profile provided guidance to the vendor about areas of
focus for their due diligence reviews.
Finally, the summary indicates that Mr. Bolio said, "We knew that they
were securitizing credit cards-it was bad." (/d. at 14.) This does not
accurately reflect anything Mr. Bolio said during his interview.
PAUL. WEISS, RIFKIN D. WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
5
Beyond the specific inaccuracies in the summaries, we believe the
summaries generally are so disjointed and factually thin as to be manifestly misleading
and prejudicial and unhelpful for any reader who did not actually attend the interviews.
In reviewing the interview summaries, we noted numerous instances in which a summary
indicates a witness answered "no" to a particular question, whereas our notes indicate that
the witness actually answered that he or she does not recall--a significantly different
response than a categorical "no."
The following exchange from the summary of Peter Steinmetz's interview
vividly illustrates the unfairness of releasing the summaries:
STEINMETZ: For third party underwriting, if CitiMortgage did issuances
off of the CMSI shelf, we'd do third party underwriting for them. They
would issue off of their shelf, and we would underwrite. These arc
investment bank (ICG) statistics in this paper.
KREBS: For purposes of this interview, we are agents of the fed
government. There are penalties for not telling the truth.
Where would you get your loans?
STEINMETZ: If you take a look at this from a timeline perspective. You
see the dollar amounts of whole loans that were bought in 2005 through
2007 to be fairly stable. There was a very big group of loans that were
sold on a regular basis. A big package would come out to most of the
Street. We would principal them and securitize them.
(Interview Summary of Peter Steinmetz at 2.) This exchange, as memorialized in the
Staffs summary, suggests that Mr. Krebs admonished Mr. Steinmetz to be truthful in
reaction to Mr. Steinmetz's comments about underwriting. This is not an accurate
recounting of the event. In point of fact, Mr. Krebs mentioned the staffs role and the
importance ofbeing truthful at this point in the interview because he forgot to do so at the
outset of the interview. This is but one example of the errors, omissions and misleading
characteristics of the summaries. We respectfully request that the FCIC refrain from
releasing the summaries publicly in their current forn1.
Release of Confidential Information. In the 33 letters you sent to current
and former employees ofCiti, you requested that the employees identify portions of their
interviews that they consider confidential or inappropriate for release. As noted in the
November 17 Letter and above, we object to the release of all--or any portion of -these
interviews to the extent that the information is not used in the Commission's final report.
We also identified in our November 17 Letter certain portions of interviews that we
considered confidential or inappropriate for release. In addition to those portions, we
PAUL, WEISS, RIFKIND, WHARTON 8 GARRISON LLP
Gary J. Cohen, Esq.
identify the following additional portions of interviews that we consider confidential or
inappropriate for release at this time:
•
The portion of Ellen Duke's interview discussing the process of preparing
the 2007 Form 8-K. (Interview Summary of Ellen Duke at 2.)
•
Any portion of any interview in which compensation was discussed,
including such discussions in the interviews of Matthew Bollo (Interview
Summary of Matthew Bolio at 14-15), Randy Barker (Interview Summary
of Randy Barker at 21, 25), Mickey Bhatia (Audio File of Mickey Bhatia's
Interview at 1:50:07-1:51 :45), Michael Raynes (Interview Summary of
Michael Raynes at 2), Murray Bames (Interview Summary of Murray
Sames at 3, 25-26), Nestor Dominguez (Interview Summary of Nestor
Dominguez at 20-21 ), Peter Steinmetz (Interview Summary of Peter
Steinmetz at 13-14 ), Philip Scares (Interview Summary of Phi lip Scares at
8-9), and Janice Wame (Interview Summary of Janice Wame at 13).
•
The portion of Randy Barker's interview summary disclosing his personal
address. (Interview Summary of Randy Barker at 30.)
•
The portion of Dan Hoffman's interview revealing proprietary information
regarding achieving efficiencies in credit enhancement, deal structuring,
and pricing. (Interview Summary of Dan Hoffman at 4, 5.)
•
The portions of Thomas Fontana's interview involving (i) discussions that
Citi had with Morgan Stanley and Merrill Lynch (Audio File of Thomas
Fontana's Interview at 27:38-27:45); (ii) discussions that Citi had with
other broker-dealer clients and the collateral deposits that Citi took from
those clients (id. at 59:30--1:01 :20); (iii) Fontana's worries about the
health of Morgan Stanley (id. at I :51:28-1:51 :37); (iv) discussions of
migrating Nomura out ofCiti's CLS system (id. at I :55:17-1 :55:25) and
the tem1s of Nomura's CLS usage (id. at I :56:18-1 :56:26); (v) discussions
of taking collateral from Morgan Stanley and classifying the name (id. at
2:05:32-2:05:38); and (vi) discussions regarding Nomura, Dexia, and
Morgan Stanley (id. at 2:06:07-2:06: 16).
•
The portions of Jeffrey Perlowitz's interview conceming (i) the
relationships among various groups and business areas within Citi,
including CitiMortgage and Global Securitized Markets (Audio File of
Jeffrey Perlowitz's Interview at 8:19-8:40; 10:15-10:23; 14:10-14:20;
30:52-31 :40); and ( ii) "Scratch and Dent" loans (id. at 1:14:55 1: 15 :08;
1:15:10-1:15:20; 1:16:30 1:17:13; 1:31:50-1:33:18).
PAUL, WEISS, RIFKIND. WHARTON S GARRISON LLP
Gary J. Cohen, Esq.
7
•
The portions of Mickey Bhatia's interview regarding methodologies for
valuation of illiquid products and risk management in 2007. (Audio File
of Mickey Bhatia's Interview at 50:41- 53:07; 57:05-57:45.)
•
The portion of Michael Raynes's interview regarding advice received
from the Office of the Comptroller of the Currency. (Audio File of
Michael Raynes's Interview at 47:35-49:35.)
•
The portions of Philip Scares's interview concerning (i) hedging activities
and strategies (Interview Summary of Philip Scares at 2-3, 5-7); (ii) the
surveillance group and public side-private side walls (icl. at 5); (iii) sales
of whole loans or RMBS to Fannie Mac or Freddie Mac (id. at 7);
(iv) profit and loss in 2006 (id at 9); and (v) interactions with FINRA or
other regulators (id. ).
•
The portion of Joseph Forlenza's and Kevin Murray's interview
discussing their interactions with, and personal opinions of, Thomas
Maheras and David Bushnell. (Interview Summary of Joseph Forlenza &
Kevin Murray at 12--14.)
•
The portions of Susan Mills's interview concerning (i) warehouse lines
and interactions with New Century (Interview Summary of Susan Mills at
9-1 0); (ii) Citi 's acquisition of assets from Argent and Ameriquest (id. at
10-11); and (iii) Ms. Mills's experience with a deposition in the mid1990s and testimony before FINRA (id. at 12).
•
The portion of Bill Arnold's interview regarding profits and losses from
the SlY program. (Interview Summary of Bill Arnold at 4.)
Thank you for your attention to these matters. We look forward to
continuing our discussion about these matters with you soon.
Respectfully submitted,
iLf~ ~/A1K
BradS. Karp
@FedFRASER