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Federal Reserve Ordered to Turn Over Data on Bailout Loans
New York Law Journal
August 26, 2009
The Federal Reserve has been ordered by a U.S. judge to release records about emergency loans to investment banks and other financial institutions during the height of the economic meltdown.
Southern District of New York Judge Loretta Preska granted a request from the Bloomberg organization under the Freedom of Information Act in Bloomberg L.P. v. Board of Governors of the Federal Reserve System, 08 Civ. 9595.
Rejecting the claim of the Federal Reserve that the material was exempt from disclosure, Preska gave the board of governors until Monday to produce the records.
Her decision contrasted with one made by fellow Southern District Judge Alvin Hellerstein in July.
In Fox News Network v. Board of Governors of the Federal Reserve System, 09 Civ. 272, Hellerstein ruled that 6,186 pages of information on loans the Federal Reserve made in 2007 and 2008 to stem the credit crisis were exempt under the act.
Two Bloomberg reporters last year requested information on who borrowed money from the Federal Reserve, how much was borrowed and what kinds of collateral was involved.
Preska, in a 47-page opinion released Monday, first found that "the Board improperly withheld agency records in response to a FOIA request by conducting an inadequate search. 5 U.S.C. §552(a)(4)(B)."
But the larger issue for the court involved records that the board did locate as responsive to Bloomberg's request but ones it argued were covered by exemptions 4 and 5 of the act.
The reporters sought 231 pages of "Remaining Term Reports" that detailed the names of the borrowers, the originating Federal Reserve Board district, the amounts of the loans, the type of lending program, and loan origination and maturity dates.
The board of governors, claiming that releasing the reports would cause severe financial damage to its borrowers, said Exemption 4 applied. That exemption requires that the withheld records contain information that is "trade secret" or "commercial or financial" in nature and can be "obtained from a person" and is "privileged or confidential."
Preska said the parties agreed the records were commercial or financial, but she rejected the argument that the records could be "obtained from a person."
"The information in the Remaining Term Reports relates more to the Federal Reserve Board of New York's decisions to lend than to the information provided by the borrowers," she said. "While the Remaining Term Reports certainly include information about the Federal Reserve Board's interaction with the borrowers, it is a non sequitur to say that information about a person is obtained from that person."
She later explained that "the information constituting borrowers' names -- and, for that matter, all the information contained in the Remaining Term Reports -- is not confidential, and thus falls outside the scope of Exemption 4."
In support of its claim that the borrowers would suffer substantial competitive harm if the records were disclosed, Preska said the board was obligated to show that such harm was "imminent."
"And the specific evidence must show that the competitive harm will result from the affirmative use of the information by competitors of the person from whom the information was obtained, not merely injuries to that person's competitive position in the marketplace or 'embarrassing publicity attendant upon public revelations,'" she said.
The board of governors, she said, had not met its burden.
Affidavits submitted by the board of governors, the judge said, at best "suggest that the borrowers' competitors may use the knowledge that a borrower participated in a Federal Reserve lending program in order to determine when the borrower is 'in a weakened condition' and spread that information to the borrower's shareholders or the market in general.
"But the risk of looking weak to competitors and shareholders is an inherent risk of market participation; information tending to increase that risk does not make the information privileged or confidential."
COMMERCIAL INFORMATION
Turning to Exemption 5, Preska was not convinced by the board's argument that the records were, in the words of the statute, "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency."
The board had contended that the Remaining Term Reports would be privileged in civil discovery under the privilege recognized in Fed. Open Mkt. Comm. of the Fed. Reserve Sys. v. Merrill, 443 U.S. 340 (1979).
In Merrill, the Court concluded "that Exemption 5 incorporates a qualified privilege for confidential commercial information, at least to the extent that this information is generated by the Government itself in the process leading up to the awarding of a contract."
But the Merrill Court, Preska said, "certainly did not intend to create a sweeping new privilege for any sensitive information, the immediate release of which would significantly harm the Government's monetary functions or commercial interests," she said.
Thomas Golden of Willkie Farr & Gallagher was lead counsel for Bloomberg.
Senior Counsel Yvonne Mizusawa and Associate General Counsel Katherine H. Wheatley of the Federal Reserve represented the board of governors.
