Court Slams FDIC for Failing to Abide by FOIA Law in Judicial Watch Bailout Lawsuit

Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that the United States District Court for the District of Columbia has denied a motion by the Federal Deposit Insurance Company (FDIC) to dismiss a Judicial Watch Freedom of Information Act (FOIA) lawsuit filed on behalf of former FDIC employee Vern McKinley. The suit is regarding the federal government bailouts of Citigroup and Bank of America and a FDIC program that guaranteed unsecured debt of private financial institutions and provided them “full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount” (Vern McKinley v. Federal Deposit Insurance Corporation (No. 1:10-cv-00420)).

The Court also granted, in part, Judicial Watch’s motion for summary judgment, noting that the FDIC “has not fulfilled its obligations under FOIA.” Now the FDIC must conduct a new search for responsive records and demonstrate that the records have been provided or properly withheld under FOIA law.

Judicial Watch filed its FOIA lawsuit on behalf of McKinley on March 15, 2010, as part of its comprehensive investigation to determine under what legal authorities and lawful rationales the federal government initiated financial bailouts. Judicial Watch seeks records related to the FDIC’s decision to guarantee $306 billion of loans and securities held by Citigroup, Inc., and $118 billion held by Bank of America. The lawsuit also seeks information about the Temporary Liquidity Guarantee Program (TLGP), the FDIC program that now guarantees $394 billion in bank deposits and debt. On April 15, 2010, the FDIC provided 101 pages of heavily redacted documents without providing sufficient justification for withholding the information.

According to U.S. District Court Judge Emmet G. Sullivan’s December 23 ruling that the FDIC’s argument is “baseless”:

The FDIC argues that the [McKinley] claim is moot because the agency complied with its obligations under the FOIA by producing the requested documents. [McKinley] responds that his claim is not moot because the documents produced are heavily redacted, and the FDIC has not met its statutory burden to “justify its claims of exemption, demonstrate that all non-exempt information has been segregated and disclosed, or prove that its searches for responsive information were reasonably calculated to uncover all responsive materials.” The Court agrees with [McKinley] that his claim is not moot.

Although the agency has released portions of certain agency documents, these additional issues remain in dispute, and the Court has jurisdiction to hear these claims.

The agency has not provided a sufficient declaration from which the Court can conclude it conducted an adequate search for all records within its possession and control.

The Court further concludes that, based on the current record, the [FDIC] has not fulfilled its obligations under FOIA or the Sunshine Act to justify withholding of documents or parts of documents pursuant to the Acts’ exemptions.

Judge Sullivan also expressed some skepticism about the legal basis of the FDIC’s heavy redactions. The court stated that it “is particularly troubled by” some of the FDIC’s assertions. The court has, therefore, initially rejected the FDIC’s redactions and demanded further justification for the withholding of information from the public.

McKinley filed his FOIA requests regarding the Citigroup and Bank of America bailouts on December 4, 2009, and December 20, 2009, respectively. In addition, McKinley filed a third FOIA request on December 20, 2009, regarding the FDIC’s Temporary Liquidity Guarantee Program, which, according to the FDIC, was established to “strengthen confidence and encourage liquidity in the banking system” by guaranteeing unsecured debt and by “providing full coverage of non-interest bearing deposit transaction amounts regardless of dollar amounts.” McKinley seeks access to “minutes and supporting memos” from the FDIC Board of Directors meetings that preceded all three.

After granting itself 10-day extensions to process McKinley’s FOIA requests, the FDIC has failed to respond within the statutory allotted time frame. Following Judicial Watch’s lawsuit filed on March 15, 2010, the FDIC provided a small number of heavily redacted documents and then, in a highly unusual move, filed its motion to dismiss the lawsuit claiming the matter was resolved. The agency has provided no additional documents and has not provided a sufficient explanation for the redacted material.

“Judge Sullivan’s ruling represents a clear-cut repudiation of the FDIC’s arrogant disregard for open records laws. Taxpayers should be pleased the court is holding the Obama administration to account for its stonewalling and lawless secrecy regarding the bailouts,” said Judicial Watch President Tom Fitton.

“The federal government’s response to the financial crisis was radical and unprecedented. The American people want the full truth about how and why these decisions were made. They must be assured that the government exercised proper authority under the law in executing these financial bailouts, which are (and this bears repeating) ongoing.”

According to a Judicial Watch Election Day poll conducted in partnership with the polling company™, inc./WomanTrend, 68% of actual voters surveyed said corruption played a major role in the financial crisis, with 47% saying corruption played a “very major role.” Moreover, 67% of actual voters said they believe the records regarding how the Treasury Department has spent bailout funds should “definitely be made available” to the public, while only 13% of voters said the records should “definitely be kept secret” — a ratio of 5:1.