Fanny Mae Securities Litigation, Exchange Act Rel. 60772, October 2, 2009
The Ohio Public Employees Retirement System as lead plaintiffs in a class action suit against Fanny Mae subpoenaed Donald Nicolaisen the former chief accountant of the Commission to testify at a deposition. Nicolaisen had testified before Congress that Fanny Mae accounting practices did not comply with generally accepted accounting principles.
Pursuant to Commission rules the Commission's general counsel issued a decision denying the request. This appeal followed.
There is a split in the circuits over the standard of review to be employed by a federal agency in these situations – whether the Administrative Procedure Act arbitrary and capricious standard or the FRCP should be applied. The Commission followed D.C. Circuit precedent and used the FRCP. Using that standard, the Commission decision analyzes: 1) whether the deposition would cause undue burden to the Commission; 2) whether the testimony would likely invade the SEC's privileges; and 3) whether the testimony would consist of expert opinion or fact testimony.
The Commission concluded that the testimony would be largely expert opinion and to the extent that it was factual, would largely be protected by the Commission's deliberative process privilege. The opinion expresses concern that allowing present or former staff to routinely testify would impose a significant burden on the Commission as the staff issues numerous comments on company periodic filings and provides accounting guidance on a regular basis.
The Commission also noted that its deliberative process privilege protects the internal discussions of its staff. See, pages 8-9 of the Commission's opinion.