Legal News

Fed Foiled by FOIA, Ordered to Cough Up Loan Recipients Names

By Ashby Jones

Among all that news organizations do for the public — like tirelessly provide page upon page of news every day and package it up in a tidy little bundle — lies one oft-overlooked function. That is, news organizations file lawsuits in order to get information out of recalcitrant agencies. Often, news organizations win these lawsuits, and when they do, what do they do? Why, they pass along the bounty to you, dear reader.

We’ve got a good example of the process at work today. Yesterday, Bloomberg LP, the organization that owns Bloomberg News, won a ruling from a federal court in Manhattan ordering the Federal Reserve to cough up the names of the companies in its emergency lending program. Click here for the story, from, naturally, Bloomberg; here for the ruling, from Manhattan federal judge Loretta Preska.

After two Bloomberg reporters made a FOIA request, the Fed refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, saying that doing so might set off a run by depositors and unsettle shareholders.

In her opinion on Monday, Preska rejected the Fed’s argument that loan records aren't covered by the federal Freedom of Information Act because their disclosure would harm borrowers' competitive positions.

The central bank "essentially speculates on how a borrower might enter a downward spiral of financial instability if its participation in the Federal Reserve lending programs were to be disclosed," Preska wrote. "Conjecture, without evidence of imminent harm, simply fails to meet the Board's burden" of proof.’

Bloomberg said in the suit that U.S. taxpayers need to know the terms of Fed lending because the public became an "involuntary investor" in the nation's banks as the financial crisis deepened and the government began shoring up companies with capital injections and loans. Citigroup Inc. and American International Group Inc. are among those who have said they accepted Fed loans.

David Skidmore, a Fed spokesman who said the board's staff was reviewing the 47-page ruling, declined to comment on whether the Fed would appeal.

Bloomberg was represented by lawyers from Willkie Farr, including Scott Rose, Thomas Golden, and Jarrod Cohen. Repping the Fed, two in-housers: Katherine Wheatley and Yvonne Facchina Mizusawa.

Full post as published by Law Blog - WSJ.com on August 25, 2009 (boomark / email).