Case 1:09-cv-01263-ESH Document 28 Filed 02/01/10 Page 1 of 9

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

)
VERN McKINLEY, )
)
Plaintiff, )
)
v. ) Civil Action No. 1:09-cv-01263 (ESH)
)
) Judge Ellen S. Huvelle (ESH)
FEDERAL DEPOSIT INSURANCE )
CORPORATION, )
)
and )
)
BOARD OF GOVERNORS OF )
THE FEDERAL RESERVE )
SYSTEM, )
)
Defendants. )
)

STATEMENT OF MATERIAL FACTS NOT IN DISPUTE BY

DEFENDANT BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Pursuant to LCvR 56.1, Defendant Board of Governors of the Federal Reserve System

(“Board”) submits the following statement of material facts as to which there is no genuine issue

for trial.

The Bear Request

1. On or around January 17, 2008, Plaintiff Vern McKinley (“Plaintiff”) sent a FOIA

request by e-mail (the “Bear Request”) to the FOIA office of defendant Board. The Bear

Request sought “further detail on information contained in the . . . minutes of the Board

of Governors of the Federal Reserve dated March 14, 2008 [including] any supporting

memos or other information that detail „the expected contagion that would result from the

immediate failure of Bear Stearns‟ and the related conclusion that „this action was

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necessary to prevent, correct, or mitigate serious harm to the economy or financial

stability‟ as described in the meeting minutes.” Declaration of Alison M. Thro, executed

January 28, 2010 (“Thro Decl.”), ¶¶ 1, 6 and Exh. A.

2. By letter dated January 16, 2009, the Board informed the Plaintiff that the deadline for

the Board‟s response was extended to February 2, 2009. Thro Decl., ¶ 7 and Exh. B. By

letter dated June 11, 2009, the Board informed the Plaintiff that it was continuing to

process the Bear Request, and provided links to some publicly available sources of

information. Thro Decl., ¶ 8 and Exh. C.

3. Board staff conducted a thorough and adequate search for documents responsive to the

Bear Request. That search included reviewing a document repository containing over

28,000 pages of information created in response to FOIA and other requests for

information concerning, among other things, the Board‟s March 14, 2008 decision to

authorize the Federal Reserve Bank of New York (“FRBNY”) to extend a loan to Bear

Stearns & Co. (“Bear Stearns”) through JP Morgan Chase & Co. (“JPMC”) (the

“Temporary Loan”), and the Board‟s March 16, 2008 decision to authorize the FRBNY

to extend a loan to JPMC in connection with its acquisition of Bear Stearns (the

“Acquisition Loan”). Thro Decl., ¶¶ 4, 5. The repository, which was periodically

updated, contained all documents reasonably likely to be responsive to the Bear Request,

as well as many documents that had no relevance to the Bear Request. Thro Decl., ¶¶ 5,

12. The Board‟s most senior attorney responsible for the processing of FOIA requests

personally searched the repository for documents responsive to the Bear Request. Thro

Decl., ¶ 12. That attorney conducted multiple layers of review to identify potentially

responsive documents, and, along with at least two other attorneys, reviewed potentially

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responsive materials a number of times to identify documents responsive to the Bear

Request. Thro Decl., ¶¶ 13, 14. Each page determined to be responsive was carefully

reviewed, and exempt information was redacted, and all reasonably segregable, non-

exempt information was provided to the Plaintiff. Thro Decl., ¶ 14.

4. Board staff identified approximately 358 pages of information responsive to the Bear

Request. Thro Decl., ¶ 16. Of this responsive information, Board staff provided

approximately 120 full pages of responsive, non-exempt information to the Plaintiff by

letter dated August 11, 2009. Thro Decl., ¶ 9 and Exh. D. That letter also informed the

Plaintiff that staff was continuing to review the remaining responsive documents. Id.

5. By letter dated September 30, 2009, the Board responded in full to the Bear Request.

Thro Decl., ¶ 10 and Exh. E. In addition to the 120 full pages provided on August 11,

2009, the Board provided an additional 48 full pages of responsive information (with

bates numbers ending in 00002-03, 06, 10, 14-16, 18-19, 24-28, 36-37, 40, 42, 45-50 and

215-238), and 27 partial pages with exempt information redacted, to the Plaintiff pursuant

to the September 30, 2009 letter. Id. and ¶ 15. The September 30, 2009 letter informed

the Plaintiff that the Board had determined that the remaining documents, totaling 163

full pages and information redacted from the 27 pages partially produced to Plaintiff,

were subject to withholding under FOIA exemptions 4, 5, 6, and 8, 5 U.S.C. §§

552(b)(4), (b)(5), (b)(6), and (b)(8). Thro Decl., ¶ 10 and Exh. E. On January 28, 2010,

the Board produced one additional page (with bates number ending in 00046) to the

Plaintiff. Thro Decl., ¶ 11.

6. By letter to the Securities and Exchange Commission (“SEC”) dated September 30, 2009,

the Board referred to the SEC for disposition portions of seven pages and one full page of

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responsive information gathered by the SEC and provided on an interagency basis to

Board staff and staff of the Federal Reserve Bank of New York (“FRBNY”), regarding

the financial condition of Bear Stearns. Thro Decl., ¶¶ 10, 16; Declaration of Margaret

Celia Winter, executed January 21, 2010 (“Winter Decl.”), ¶ 4 and Attachment A. By

letter to the Plaintiff dated January 7, 2010, with a copy to the Board, the SEC informed

the Plaintiff that it would withhold the information referred by the Board in full under

FOIA exemptions 5 and 8, 5 U.S.C. §§ 552(b)(5) and (b)(8). Winter Decl., ¶ 5 and

Attachment B.

7. Information referred by the Board to the SEC regarding the financial condition of Bear

Stearns was provided by SEC staff to Board and FRBNY staff on an inter-agency basis

prior to the Board‟s March 14, 2008 decision to authorize the Temporary Loan for the

purpose of informing Board and FRBNY staffs‟ and the Board‟s pre-decisional

deliberations and analyses regarding whether to take action in response to news of Bear

Stearns‟ possible bankruptcy filing and whether to authorize the Temporary Loan.

Winter Decl., ¶¶ 6-8; see Thro Decl., ¶¶ 3, 13. In addition, the withheld information was

obtained by the SEC in its capacity as Bear Stearns‟ supervisor under the Consolidated

Supervised Entity (“CSE”) program, a voluntary program that allowed the SEC to

supervise certain broker-dealer holding companies, including Bear Stearns, on a

consolidated basis, and the information relates to examination, operating, or condition

reports prepared by, on behalf of, or for the use of the SEC in connection with its

supervision and regulation of Bear Stearns. Winter Decl., ¶¶ 9-12.

8. On or around March 10, 2008, the Board began to receive information and hear rumors

that Bear Stearns was experiencing severe liquidity problems and might have to declare

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bankruptcy in the near term. Thro Decl., ¶ 3; Declaration of Coryann Stefansson,

executed January 29, 2010 (“Stefansson Decl.”), ¶ 7. Although Bear Stearns was a

securities broker-dealer and holding company, Winter Decl., ¶¶ 10-11, and not a financial

institution regulated by the Board, the Board was concerned that both large and small

financial institutions it regulated, as well as other financial institutions and the broader

financial markets, could be severely impacted by a Bear Stearns bankruptcy filing.

Stefansson Decl., ¶¶ 8, 10.

9. In response to the rapidly evolving crisis, Board staff and staff of the FRBNY began

collecting and sharing real-time data on the exposure of various financial institutions to

Bear Stearns, as well as other information and analyses, to assess the gravity of Bear

Stearns‟ situation, the possible impact of a Bear Stearns bankruptcy on financial

institutions and markets, and the Board‟s possible policy responses. Stefansson Decl., ¶¶

7-10. All of this data, as on the Vaughn index attached as Exh. F to the Thro declaration,

was used by the Board, and Board and FRBNY staff members advising the Board, in the

process of deliberation and decision making that preceded the Board‟s ultimate decision,

on March 14, 2008, to extend the Temporary Loan to Bear Stearns through JPMC. Thro

Decl., ¶¶ 17, 19, 22; Stefansson Decl., ¶¶ 7-14. While the vast majority of this

information was exchanged among Board and FRBNY staff and the Board in the days

immediately preceding, or on the day of, authorization of the Temporary Loan (see Thro

Decl., Exh. F, items 1-31, 37), because of the exigencies of time, items 33, 35, 36 and 38

contain information and analyses presented orally to the Board before the decision as part

of the ongoing decision making process that were later reduced to writing. Thro Decl., ¶

22; Stefansson Decl., ¶¶ 7-10, 12. Item 38 is a draft affidavit prepared by an FRBNY

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attorney and provided to Board attorneys in anticipation of possible litigation stemming

from the Board‟s decision to authorize the Temporary Loan. Thro Decl., ¶ 22. For the

reasons stated above in paragraphs 7-9, the Federal Reserve withheld this information

pursuant to exemption 5.

10. Some withheld information, identified as items 4, 5, 6, 9, 10, 13, 17, 18, 21, 22, and 24

on the Vaughn index, consisted of data gathered by Reserve Bank examiners concerning

supervised financial institutions and their exposure to Bear Stearns. Thro Decl., ¶ 17;

Stefansson Decl., ¶¶ 13-15. Information gathered by the Board through the bank

examination process is considered by the Board and the regulated financial institutions to

be sensitive and highly confidential. Stefansson Decl., ¶¶ 4, 13-15. This information

consists of commercial or financial information obtained from regulated institutions,

which are corporations or partnerships, that, if released, would likely cause substantial

competitive harm to the institutions that supplied it. Thro Decl., ¶ 17; Stefansson Decl.,

¶¶ 13-15. In particular, a financial institution‟s competitors could: use the data to assess

sensitive trading relationships and credit relationships which could potentially harm the

firm‟s on-going businesses activities; exploit the information regarding exposures to

weaken a specific entity and cause weaknesses in its liquidity position; pull or accelerate

funding facilities the competitor had outstanding to the institution; or use the data to

underbid the institution in the private funding markets. Stefansson Decl., ¶ 15. A

competitor also could inform the institution‟s customers and market analysts that the

institution faced a funding shortage, which likely would cause some retail and

commercial customers to move their business to other banks and may cause analysts to

downgrade the institution‟s stock. Id. Disclosure of this information also is likely to

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impair the Board‟s ability to obtain necessary information in the future as some highly

sensitive information is provided by banks to their regulators on a voluntary basis based

upon the banks‟ understanding that regulators will maintain its confidentiality, and

supervised institutions would be significantly less willing to share such information if

they knew it would be publicly disclosed. Id. For these reasons, the Federal Reserve

withheld this information pursuant to exemptions 4 and/or 8.

11. Some commercial or financial information regarding the identities and amount of

exposure of certain institutions to Bear Stearns, current and historic pricing information

in the repo market, and related information, identified as items 7, 12, 14, 15, 20, 30, 31, a

portion of item 37 (described in the Vaughn index as Annex A)), and item 38, on the

Vaughn index, was obtained from market participants on a voluntary and strictly

confidential basis on the understanding that the Board and FRBNY would maintain the

data in strictest confidence. Thro Decl., ¶ 20. These market participants do not

customarily disclosed this information to the public. Id. Disclosure of this information is

likely to cause substantial competitive injury to the market participants who provided it

and, because it was provided on a voluntary basis on the assurance that it would remain

confidential, disclosure is likely to impair the Board‟s and FRBNY‟s ability to obtain

similar necessary information in the future. Id. For these reasons, the Federal Reserve

withheld this information pursuant to exemption 4.

12. Some withheld information, identified as item 32 and a portion of item 37 (described in

the Vaughn index as Annex B) consists of commercial or financial information

(proprietary databases of market data) obtained by the FRBNY in its capacity as a client

of two financial institutions. Thro Decl., ¶ 21. These entities provide this information to

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the FRBNY pursuant to voluntary contractual arrangements which prohibit disclosure or

use of the data outside of the Federal Reserve System. Id. These entities do not

customarily disclose this information to the public and, because of the contractual

confidentiality arrangements, public disclosure is likely to impair the Board‟s and

FRBNY‟s ability to enter into similar contracts, or obtain similar necessary information,

in the future. Id. For these reasons, the Federal Reserve withheld this information

pursuant to exemption 4.

13. Some of the withheld data collected by Board and FRBNY bank examination staffs,

identified as items 4, 5, 6, 9, 10, 13, 17, 18, 21, 22, and 24 on the Vaughn index, was

gathered by the Board, a federal financial institutions supervisory agency, and the

FRBNY, to which the Board has delegated certain supervisory authority, from supervised

financial institutions as part of the ongoing process of supervision and examination by

which the Board monitors and regulates the condition of financial institutions.

Stefansson Decl., ¶¶ 4, 13-15; Thro Decl., ¶ 17. This information relates to examination,

operating or condition reports prepared by, on behalf of or for the use of an agency (the

Board) responsible for the regulation or supervision of financial institutions, and is

considered highly confidential by the Board and financial institutions because it was

obtained through the supervisory process. Id. For these reasons, the Federal Reserve

withheld this information pursuant to exemption 8.

Dated: February 1, 2010

Respectfully submitted,

KATHERINE H. WHEATLEY TONY WEST

DC Bar No. 359037 Assistant Attorney General

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Associate General Counsel

JOHN L. KURAY /s/ C. Lee Reeves__________________
Senior Counsel JOHN TYLER
YVONNE F. MIZUSAWA Assistant Branch Director, Federal Programs
Senior Counsel Branch
Board of Governors of the Federal C. LEE REEVES
Reserve System Trial Attorney, Department of Justice, Civil
20th and C Streets, N.W. Division, Federal Programs Branch
Washington D.C. 20551 20 Massachusetts Avenue, N.W.
(202) 452-3789 Washington, D.C. 20530
Fax (202) 736-5615 Tel: (202) 514-4805
Fax: (202) 616-8470
lee.reeves@usdoj.gov

Attorneys for Defendant Board of

Governors of the Federal Reserve System