Case 1:04-cv-01639-RJL Document 782 Filed 09/16/09 Page 1 of 7

UNITED STATES DISTRICT COURT DISTRICT OF COLUMBIA ) ) ) ) ) ) ) ) ) )

In re Federal National Mortgage Association Securities, Derivative, and “ERISA” Litigation

MDL No. 1668

In Re Fannie Mae Securities Litigation

Consolidated Civil Action No.: 1:04-CV-01639 Judge Richard J. Leon

LEAD PLAINTIFFS’ REPLY MEMORANDUM TO KPMG’S OPPOSITION TO LEAD PLAINTIFFS’ MOTION TO COMPEL TESTIMONY FROM DONALD NICOLAISEN OR, ALTERNATIVELY, TO QUASH ANY FUTURE DEPOSITION DISCOVERY OF OFHEO BY DEFENDANTS Lead Plaintiffs, the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio (collectively, “Lead Plaintiffs”), through counsel, respectfully submit this reply memorandum to KPMG LLP’s (“KPMG’s”) Opposition to Lead Plaintiffs’ Motion for an Order Compelling Compliance with Lead Plaintiffs’ Subpoena Duces Tucem for the testimony of Donald Nicolaisen. As described below, KPMG’s contentions that Lead Plaintiffs’ motion to compel is untimely and unwarranted are baseless and should be rejected. I. LEAD PLAINTIFFS HAVE NOT DELAYED PURSUIT OF MR. NICOLAISEN’S TESTIMONY Donald Nicolaisen has been on Lead Plaintiffs’ witness list since the first such list was provided to the parties on March 23, 2007. See Ex. A. Furthermore, contrary to KPMG’s contention that Lead Plaintiffs did not attempt to subpoena Mr. Nicolasien until June 2008, Lead Plaintiffs twice attempted to effect service of the subpoena on Mr. Nicolaisen in December 2007 and March 2008, notice of which was provided to all Defendants.
1

See Exs. B and C.1

Unable to directly serve Mr. Nicolaisen, Lead Plaintiffs were forced to serve him via the United States Securities and Exchange Commission (“SEC”).

622568.1 1

Case 1:04-cv-01639-RJL Document 782 Filed 09/16/09 Page 2 of 7

Moreover, Mr. Nicolaisen has been on KPMG’s own witness list since April 9, 2007 (see Ex. D), and on the Individual Defendants’ witness list since September 12, 2007 (see Ex. E). Indeed, the Individual Defendants listed Mr. Nicolaisen as a “key witness” requiring a “multi-day” deposition. See Id. Additionally, the deposition schedule in this case (particularly as influenced by KPMG’s own requests) has also contributed to the timing of Mr. Nicolaisen’s deposition. KPMG argued that no depositions should occur before Fannie Mae’s and KPMG’s document production was complete. See Ex. G at 64-66. When asked by Lead Plaintiffs if any depositions could proceed that were not affected by the Fannie Mae and KPMG document production, KPMG responded that Mr. Nicolaisen was a witness whose testimony needed to wait until that production was complete. KPMG subsequently sought (and the Court granted) a stay of depositions until July 15, 2008 so that Fannie Mae and KPMG could complete their production. Management Order No 5, entered May 7, 2008 (Docket No. 640). See Case

Soon thereafter, two

additional stays were granted, from September 8, 2008 until January 6, 2009, following Fannie Mae’s entry into conservatorship.2 Pursuant to the last stay, depositions were not permitted to resume until January 21, 2009. However, Individual Defendants objected to the taking of Mr. Nicolaisen’s deposition until all OFHEO documents had been produced. See Exhibit E. OFHEO has produced a substantial number of additional documents since January 21, 2009,3 and there have been

2

See Order Granting Stay of All Proceedings Pursuant to 12 U.S.C. § 4617 entered September 22, 2008 (Docket No. 673) and Minute Order dated October 20, 2008, stating depositions could not resume until January 21, 2008.

3

According to the Xerox document database being shared by all parties, OFHEO has made the following productions: 5/20/09 5/22/09 - 74,992 pages - 37,150 pages

622568.1 1

2

Case 1:04-cv-01639-RJL Document 782 Filed 09/16/09 Page 3 of 7

numerous motions to compel OFHEO filed by Defendants and in-chambers conferences to try to resolve these OFHEO document issues since January 21, 2009.4 Finally, OFHEO document production issues are still not fully resolved. KPMG filed another motion to compel OFHEO on July 24, 2009 (Dkt. 763) and Defendant Spencer just filed another motion to compel against FHFA/OFHEO on September 15, 2009 (Docket No. 781) – these motions have yet to be ruled upon. Moreover, KPMG recently issued an additional document subpoena on OFHEO. See Ex. F. Accordingly, KPMG’s claim that Lead Plaintiffs have waited four years to pursue Mr. Nicolaisen’s testimony is simply not true. It is the Defendants, not Lead Plaintiffs, that have refused to let Mr. Nicoliasen’s deposition be taken before now.

5/29/09 6/10/09 6/23/09 7/7/09 7/8/09 7/16/09 7/24/09 7/28/09 7/30/09 8/7/09 8/10/09 8/24/09 9/8/09
4

- 30,654 pages - 35,908 pages 7 pages - 56,595 pages - 39,554 pages - 140,339 pages 75 pages 93 pages 205 pages 215 pages - 17,638 pages 610 pages 16 pages

An in-chambers conference was held to discuss OFHEO document disputes on February 4, 2009 and, based upon statements made on the record during public status conferences, several more were held thereafter; Defendant Raines filed a motion to compel against OFHEO on February 26, 2009 (Dkt. No. 700); KPMG joined in that motion on March 4, 2009 (Dkt. No. 703); the Appellate Court affirmed the District Court’s sanction order on March 5, 2009 (Dkt. 705); a hearing on the motion to compel OFHEO was held March 6, 2009; KPMG filed another motion to compel OFHEO on April 17, 2009 (Dkt. 717 and Dkt. 722); Individual Defendants filed a joint motion to compel OFHEO on April 17, 2009 (Dkt. 720); Individual Defendants filed a motion for leave to file reply brief in support of their motion to compel OFHEO on May 1, 2009 (Dkt. No. 726); KPMG filed a motion for leave to file a reply brief in support of its motion to compel OFHEO on May 4, 2009 (Dkt. 730); OFHEO filed a motion re: “Sneak Peek” of exempt documents on May 15, 2009 (Dkt. 735); a hearing on the motions to compel was held on May 27, 2009; a Joint Motion for an order concerning documents withheld as exempt was filed by Individual Defendants and OFHEO on June 8, 2009 (Dkt. 739); the Court granted the Individual Defendants’ motion

622568.1 1

3

Case 1:04-cv-01639-RJL Document 782 Filed 09/16/09 Page 4 of 7

II.

MR. NICOLAISEN IS A FACT WITNESS WHOSE TESTIMONY IS AT LEAST AS RELEVANT AS THAT OF THE OFHEO WITNESSES WHO HAVE TESTIFIED KPMG is wrong that Lead Plaintiffs seek to use Mr. Nicolaisen as an expert. The

evidence adduced to date has shown that Mr. Nicolaisen or representatives from the Office of Chief Accountant participated in numerous meetings and other communications with Fannie Mae, Fannie Mae’s consultants and KPMG where Fannie Mae’s accounting practices were discussed. Mr. Nicolaisen’s participation in these meetings and that of his colleagues at the SEC involve factual evidence – not expert opinion – and do not implicate pure opinion testimony. See, e.g., St. Paul Mercury Ins. Co. v. Capitol Sprinkler Inspection, Inc., C.A. No. 05-2115 (CKK), 2007 U.S. Dist. LEXIS 39606, at *40-43 (D.D.C. June 1, 2007) (permitting a witness to testify as a fact witness – even though such witness might be an expert in his field – regarding “information he learned from his pre-litigation inquiries and receipt of information and materials”). That Mr. Nicolaisen is a highly relevant fact witness concerning what occurred at those meetings cannot be disputed – his testimony regarding such facts is therefore wholly appropriate and further compelled by the strong public interest in resolving the issues in this case. Moreover, given that KPMG itself listed Mr. Nicolaisen as a witness to be deposed, it rings particularly hollow that it now contends that his testimony is irrelevant. Importantly, Individual Defendants also listed Mr. Nicolisen on their witness list and indicated he was in fact a “key” and “multi-day” witness. Indeed, KPMG does not claim that the nature of Mr.

Nicolaisen’s testimony is any different than the testimony of OFHEO (which KPMG and Individual Defendants have vigorously sought – and obtained). The testimony of Mr. Nicolaisen

to compel OFHEO on June 9, 2009 (Dkt. 740); and KPMG and OFHEO filed a joint motion regarding documents withheld as exempt on June 11, 2009 (Dkt. 743).

622568.1 1

4

Case 1:04-cv-01639-RJL Document 782 Filed 09/16/09 Page 5 of 7

and the OFHEO testimony relate, in large part, to Defendants’ knowledge of, and discussions with, the SEC and OFHEO regarding Fannie Mae’s accounting policies and practices in effect during the class period that are at issue in this case, the documents and other information considered by the SEC and OFHEO during their respective investigations, and whether Fannie Mae’s financial statements were compliant with Generally Accepted Accounting Principles. Defendants have spent enormous amounts of the Court’s and parties’ time and resources conducting discovery of OFHEO with respect to the nature and scope of its review and its findings. Defendants have deposed at least eight OFHEO personnel to date. Since discovery relating to the review and findings of one of Fannie Mae’s regulators – OFHEO – has been permitted, then so should discovery relating to the review and findings of Fannie Mae’s other regulator – the SEC. III. CONCLUSION For the reasons described above and in Lead Plaintiffs’ opening brief, Lead Plaintiffs respectfully request an order compelling the deposition testimony of Mr. Nicolaisen.

622568.1 1

5

Case 1:04-cv-01639-RJL Document 782 Filed 09/16/09 Page 6 of 7

Dated: September 16, 2009

Respectfully submitted, ATTORNEY GENERAL FOR THE STATE OF OHIO RICHARD CORDRAY WAITE, SCHNEIDER, BAYLESS & CHESLEY CO., L.P.A. /s/ Stanley M. Chesley Stanley M. Chesley James R. Cummins (D.C. Bar #OH0010) Melanie S. Corwin 1513 Fourth & Vine Tower One West Fourth Street Cincinnati, Ohio 45202 Telephone: (513) 621-0267 Facsimile: (513) 621-0262 E-mail: jcummins@wsbclaw.com E-mail: mcorwin@wsbclaw.com Special Counsel for the Attorney General of Ohio and Lead Counsel for Lead Plaintiffs BERNSTEIN LIEBHARD LLP Jeffrey D. Lerner 10 East 40th Street New York, New York 10016 Telephone: (212) 779-1414 Facsimile: (212) 779-3218 E-mail: lerner@bernlieb.com Special Counsel for the Attorney General of Ohio and CoLead Counsel for Lead Plaintiffs COHEN MILSTEIN SELLERS & TOLL P.L.L.C. /s/ Matthew K. Handley Daniel S. Sommers (DC Bar #416549) Matthew K. Handley (DC Bar #489946) 1100 New York Avenue, N.W. Washington, D.C. 20005 Telephone: (202) 408-4600 Facsimile: (202) 408-4699 E-mail: dsommers@cohenmilstein.com Local Counsel for Lead Plaintiffs

622568.1 1

6

Case 1:04-cv-01639-RJL Document 782 Filed 09/16/09 Page 7 of 7

CERTIFICATE OF SERVICE

I certify that on September 16, 2009, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send notification of such filing to all counsel of record in this matter who are registered on the CM/ECF, and service was accomplished on any of the counsel of record not registered through the CM/ECF system via regular U.S. mail. /s/ Matthew K. Handley Matthew K. Handley (DC Bar #489946)
33975

622568.1 1

7

Case 1:04-cv-01639-RJL Document 782-1 Filed 09/16/09 Page 1 of 4

Exhibit A

Case 1:04-cv-01639-RJL Document 782-1 Filed 09/16/09 Page 2 of 4

Case 1:04-cv-01639-RJL Document 782-1 Filed 09/16/09 Page 3 of 4

Case 1:04-cv-01639-RJL Document 782-1 Filed 09/16/09 Page 4 of 4

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 1 of 9

Exhibit B

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 2 of 9

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 3 of 9

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 4 of 9

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 5 of 9

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 6 of 9

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 7 of 9

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 8 of 9

Case 1:04-cv-01639-RJL Document 782-2 Filed 09/16/09 Page 9 of 9

Case 1:04-cv-01639-RJL Document 782-3 Filed 09/16/09 Page 1 of 8

Exhibit C

Case 1:04-cv-01639-RJL Document 782-3 Filed 09/16/09 Page 2 of 8

Case 1:04-cv-01639-RJL Document 782-3 Filed 09/16/09 Page 3 of 8

Case 1:04-cv-01639-RJL Document 782-3 Filed 09/16/09 Page 4 of 8

Case 1:04-cv-01639-RJL Document 782-3 Filed 09/16/09 Page 5 of 8

Case 1:04-cv-01639-RJL Document 782-3 Filed 09/16/09 Page 6 of 8

Case 1:04-cv-01639-RJL Document 782-3 Filed 09/16/09 Page 7 of 8

Case 1:04-cv-01639-RJL Document 782-3 Filed 09/16/09 Page 8 of 8

Case 1:04-cv-01639-RJL Document 782-4 Filed 09/16/09 Page 1 of 7

Exhibit D

Case 1:04-cv-01639-RJL Document 782-4 Filed 09/16/09 Page 2 of 7

Case 1:04-cv-01639-RJL Document 782-4 Filed 09/16/09 Page 3 of 7

Case 1:04-cv-01639-RJL Document 782-4 Filed 09/16/09 Page 4 of 7

Case 1:04-cv-01639-RJL Document 782-4 Filed 09/16/09 Page 5 of 7

Case 1:04-cv-01639-RJL Document 782-4 Filed 09/16/09 Page 6 of 7

Case 1:04-cv-01639-RJL Document 782-4 Filed 09/16/09 Page 7 of 7

Case 1:04-cv-01639-RJL Document 782-5 Filed 09/16/09 Page 1 of 4

Exhibit E

Case 1:04-cv-01639-RJL Document 782-5 Filed 09/16/09 Page 2 of 4

Case 1:04-cv-01639-RJL Document 782-5 Filed 09/16/09 Page 3 of 4

Case 1:04-cv-01639-RJL Document 782-5 Filed 09/16/09 Page 4 of 4

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 1 of 11

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

IN RE FANNIE MAE SECURITIES LITIGATION FRANKLIN MANAGED TRUST et al., Plaintiffs, v.

No. 1:04-cv-01639 (RJL)

No. 1:06-cv-00139 (RJL) FEDERAL NATIONAL MORTGAGE ASSOCIATION et al., Defendants. NOTICE OF SUBPOENA PLEASE TAKE NOTICE that pursuant to Rule 45 of the Federal Rules of Civil Procedure, KPMG LLP, by and through its undersigned counsel, has served the attached subpoena upon the Federal Housing Finance Agency, requesting them to produce for inspection and copying the following documents identified in the schedules to the attached subpoena. Dated: August 26, 2009 Respectfully submitted, /s/ David Debold F. Joseph Warin (D.C. Bar No. 235978) Scott A. Fink (admitted pro hac vice) Michael F. Flanagan (D.C. Bar No. 435942) Andrew S. Tulumello (D.C. Bar No. 468351) David Debold (D.C. Bar No. 484791) GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 Telephone: (202) 955-8500 Facsimile: (202) 467-0539 Counsel for Defendant KPMG LLP

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 2 of 11

CERTIFICATE OF SERVICE I hereby certify that I caused copies of the foregoing to be transmitted via electronic mail to the following counsel: James R. Cummins Melanie S. Corwin Jean Marie Geoppinger Waite, Schneider, Bayless & Chesley Co., L.P.A. 1513 Fourth & Vine Tower One West Fourth Street Cincinnati, OH 45202 Counsel for Lead Plaintiffs Frank J. Johnson Johnson Bottini, LLP 655 W. Broadway, Suite 1400 San Diego, CA 92101 Counsel for Plaintiff Sassan Shahrokhinia Jeffrey W. Kilduff Michael J. Walsh, Jr. O’Melveny & Myers LLP 1625 Eye Street, N.W. Washington, D.C. 20006 Counsel for Defendants Fannie Mae, Thomas P. Gerrity, Taylor C. Segue, III, William R. Harvey, Joe Pickett, Kenneth M. Duberstein, Manuel Justiz, H. Patrick Swygert, and Leslie Rahl Kevin M. Downey Alex G. Romain Joseph M. Terry, Jr. John E. Clabby Williams & Connolly LLP 725 Twelfth Street, N.W. Washington, D.C. 20005-5091 Counsel for Defendant Franklin D. Raines Daniel S. Sommers Cohen, Milstein, Hausfeld & Toll P.L.L.C West Tower, Suite 500 1100 New York Ave., N.W. Washington, D.C. 20005 Counsel for Plaintiffs Vincent Vinci; State Teachers Retirement System of Ohio; Anne E. Flynn; Robert L. Garber Robert W. Liles Liles Parker, PLLC 4400 MacArthur Blvd., N.W. Suite 203 Washington, DC 20007 Counsel for Plaintiff Sassan Shahrokhinia Steven M. Salky Eric R. Delinsky Ellen D. Marcus Caroline E. Reid Zuckerman Spaeder LLP 1800 M Street, N.W., Suite 1000 Washington, D.C. 20036-2638 Counsel for Defendant Timothy J. Howard

David S. Krakoff Christopher F. Regan Adam B. Miller Heather H. Martin Mayer Brown LLP 1909 K Street, N.W. Washington, D.C. 20006-1101 Counsel for Defendant Leanne G. Spencer

2

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 3 of 11

William H. Jeffress Julia E. Guttman Nicholas A. Brady Baker Botts LLP The Warner 1299 Pennsylvania Ave., N.W. Washington, D.C. 20004-2400 Counsel for Defendant Jamie S. Gorelick John H. Doyle, III Reed Smith LLP 599 Lexington Ave. New York, NY 10022-7650 Counsel for Defendant Leslie Rahl Shannon Ratliff Ratliff Law Firm, PLLC 600 Congress Avenue Suite 3100 Austin, TX 78701 Counsel for Manuel Justiz Cristen Sikes Rose Edward S. Scheideman III John J. Clarke, Jr. DLA Piper US LLP 1200 19th Street, N.W. Washington, D.C. 20036 Counsel for Defendants Stephen B. Ashley, Donald B. Marron, and Ann Korologos

Rhonda D. Orin Anderson Kill & Olick, P.C. 2100 M Street, N.W. Suite 650 Washington, D.C. 20037 Counsel for Defendant Leslie Rahl

James D. Wareham Paul, Hastings, Janofsky & Walker LLP 875 15th Street, N.W., Suite 12 Washington, D.C. 20005 Counsel for Defendant Daniel H. Mudd Barbara Van Gelder Morgan, Lewis & Bockius LLP 111 Pennsylvania Ave., NW Washington, DC 20004 Counsel for Defendants Anne M. Mulcahy and Frederic V. Malek David I. Ackerman James Hamilton Bingham McCutchen LLP 2020 K Street, N.W. Washington, D.C. 20006 Counsel for Defendant Joe Pickett

3

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 4 of 11

Seth Aronson O’Melveny & Myers LLP 400 South Hope Street, 15th Floor Los Angeles, Ca. 90071 Counsel for Defendant Fannie Mae, Thomas P. Gerrity, Taylor C. Segue, III, William R. Harvey, Joe Pickett, Kenneth M. Duberstein, Manuel Justiz, H. Patrick Swygert, and Leslie Rahl William K. Dodds Neil A. Steiner Dechert LLP 30 Rockefeller Plaza New York, NY 10112 Counsel for Defendant Thomas P. Gerrity

Ian H. Gershengorn Jerome L. Epstein Jenner & Block 601 13th Street, NW Suite 1200S Washington, DC 20005 Counsel for Fannie Mae

/s/ David Debold David Debold

4

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 5 of 11
AO88 (Rev. 12/07) Subpoena in a Civil Case

Issued by the

UNITED STATES DISTRICT COURT
District of Columbia __________ District of __________
In re Fannie Mae Securities Litigation; Fannie Mae

SUBPOENA IN A CIVIL CASE Case Number:1 1:04cv01639
1:06cv02111

V.
KPMG LLP

TO: Federal Housing Finance Agency
1700 G Street, N.W. Washington, DC 20552

G YOU ARE COMMANDED to appear in the United States District court at the place, date, and time specified below to
testify in the above case.
PLACE OF TESTIMONY COURTROOM

DATE AND TIME

G YOU ARE COMMANDED to appear at the place, date, and time specified below to testify at the taking of a deposition
in the above case.
PLACE OF DEPOSITION DATE AND TIME

✔ G YOU ARE COMMANDED to produce and permit inspection and copying of the following documents or objects at the

place, date, and time specified below (list documents or objects):
Please see Attachment A

PLACE

Gibson, Dunn & Crutcher LLP, 1050 Connecticut Ave., NW; Washington, DC 20036

DATE AND TIME

9/9/2009 10:00 am

G YOU ARE COMMANDED to permit inspection of the following premises at the date and time specified below.
PREMISES DATE AND TIME

Any organization not a party to this suit that is subpoenaed for the taking of a deposition shall designate one or more officers, directors, or managing agents, or other persons who consent to testify on its behalf, and may set forth, for each person designated, the matters on which the person will testify. Federal Rule of Civil Procedure 30(b)(6).
ISSUING OFFICER’S SIGNATURE AND TITLE (INDICATE IF ATTORNEY FOR PLAINTIFF OR DEFENDANT) DATE

/s/ David Debold, attorney for KPMG
ISSUING OFFICER’S NAME, ADDRESS AND PHONE NUMBER

8/26/2009

David Debold c/o Gibson, Dunn & Crutcher LLP; 1050 Connecticut Ave., NW; Washington, DC 20036; phone: (202) 955-8551
(See Federal Rule of Civil Procedure 45 (c), (d), and (e), on next page)

1

If action is pending in district other than district of issuance, state district under case number.

AO88 (Rev. 12/07) Subpoena in a Civil Case (Page 2)

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 6 of 11
PROOF OF SERVICE
DATE PLACE

SERVED
SERVED ON (PRINT NAME) MANNER OF SERVICE

SERVED BY (PRINT NAME)

TITLE

DECLARATION OF SERVER I declare under penalty of perjury under the laws of the United States of America that the foregoing information contained in the Proof of Service is true and correct. Executed on
DATE SIGNATURE OF SERVER

ADDRESS OF SERVER

Federal Rule of Civil Procedure 45 (c), (d), and (e), as amended on December 1, 2007:
(c) PROTECTING A PERSON SUBJECT TO A SUBPOENA. (1) Avoiding Undue Burden or Expense; Sanctions. A party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena. The issuing court must enforce this duty and impose an appropriate sanction — which may include lost earnings and reasonable attorney's fees — on a party or attorney who fails to comply. (2) Command to Produce Materials or Permit Inspection. (A) Appearance Not Required. A person commanded to produce documents, electronically stored information, or tangible things, or to permit the inspection of premises, need not appear in person at the place of production or inspection unless also commanded to appear for a deposition, hearing, or trial. (B) Objections. A person commanded to produce documents or tangible things or to permit inspection may serve on the party or attorney designated in the subpoena a written objection to inspecting, copying, testing or sampling any or all of the materials or to inspecting the premises — or to producing electronically stored information in the form or forms requested. The objection must be served before the earlier of the time specified for compliance or 14 days after the subpoena is served. If an objection is made, the following rules apply: (i) At any time, on notice to the commanded person, the serving party may move the issuing court for an order compelling production or inspection. (ii) These acts may be required only as directed in the order, and the order must protect a person who is neither a party nor a party's officer from significant expense resulting from compliance. (3) Quashing or Modifying a Subpoena. (A) When Required. On timely motion, the issuing court must quash or modify a subpoena that: (i) fails to allow a reasonable time to comply; (ii) requires a person who is neither a party nor a party's officer to travel more than 100 miles from where that person resides, is employed, or regularly transacts business in person — except that, subject to Rule 45(c)(3)(B)(iii), the person may be commanded to attend a trial by traveling from any such place within the state where the trial is held; (iii) requires disclosure of privileged or other protected matter, if no exception or waiver applies; or (iv) subjects a person to undue burden. (B) When Permitted. To protect a person subject to or affected by a subpoena, the issuing court may, on motion, quash or modify the subpoena if it requires: (i) disclosing a trade secret or other confidential research, development, or commercial information; (ii) disclosing an unretained expert's opinion or information that does not describe specific occurrences in dispute and results from the expert's study that was not requested by a party; or (iii) a person who is neither a party nor a party's officer to incur substantial expense to travel more than 100 miles to attend trial (C) Specifying Conditions as an Alternative. In the circumstances described in Rule 45(c)(3)(B), the court may, instead of quashing or modifying a subpoena, order appearance or production under specified conditions if the serving party: (i) shows a substantial need for the testimony or material that cannot be otherwise met without undue hardship; and (ii) ensures that the subpoenaed person will be reasonably compensated. (d) DUTIES IN RESPONDING TO A SUBPOENA. (1) Producing Documents or Electronically Stored Information. These procedures apply to producing documents or electronically stored information: (A) Documents. A person responding to a subpoena to produce documents must produce them as they are kept in the ordinary course of business or must organize and label them to correspond to the categories in the demand. (B) Form for Producing Electronically Stored Information Not Specified. If a subpoena does not specify a form for producing electronically stored information, the person responding must produce it in a form or forms in which it is ordinarily maintained or in a reasonably usable form or forms. (C) Electronically Stored Information Produced in Only One Form. The person responding need not produce the same electronically stored information in more than one form. (D) Inaccessible Electronically Stored Information. The person responding need not provide discovery of electronically stored information from sources that the person identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the person responding must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery. (2) Claiming Privilege or Protection. (A) Information Withheld. A person withholding subpoenaed information under a claim that it is privileged or subject to protection as trial-preparation material must: (i) expressly make the claim; and (ii) describe the nature of the withheld documents, communications, or tangible things in a manner that, without revealing information itself privileged or protected, will enable the parties to assess the claim. (B) Information Produced. If information produced in response to a subpoena is subject to a claim of privilege or of protection as trial-preparation material, the person making the claim may notify any party that received the information of the claim and the basis for it. After being notified, a party must promptly return, sequester, or destroy the specified information and any copies it has; must not use or disclose the information until the claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it before being notified; and may promptly present the information to the court under seal for a determination of the claim. The person who produced the information must preserve the information until the claim is resolved. (e) CONTEMPT. The issuing court may hold in contempt a person who, having been served, fails without adequate excuse to obey the subpoena. A nonparty's failure to obey must be excused if the subpoena purports to require the nonparty to attend or produce at a place outside the limits of Rule 45(c)(3)(A)(ii).

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 7 of 11

ATTACHMENT A TO SUBPOENA DUCES TECUM TO THE FEDERAL HOUSING FINANCE AGENCY INSTRUCTIONS 1. If you object to producing any document (in whole or in part) based on any privilege, you should state the nature of the privilege claimed and the basis thereof; identify and describe the document and the reason for which it was created; identify the creator of the document and all persons named on it, to whom the document was sent, for whose use it was prepared, and state the date of the document. This information should be set forth separately on a privilege log. 2. If you claim that any request is beyond the scope of permissible discovery, specify each and every ground on which such claim rests. 3. If you find any document request or term used in a request to be vague, ambiguous, subject to varying interpretations, or unclear, state what portion of the request or term you find to be vague, ambiguous, subject to varying interpretations, or unclear, state your understanding of the request or term, and respond in accordance with that understanding. 4. Draft or non-identical copies are to be considered separate documents for purposes of these requests. 5. If any responsive document is no longer in existence, cannot be located or is not in your possession, custody or control, identify it, describe its subject matter and describe its disposition (including without limitation identifying the person or persons (a) having knowledge of the contents of the document and/or its destruction, deletion or disposition and (b) responsible for its destruction, deletion or other disposition. 6. To the extent you believe that any responsive document is not within your possession, custody, or control, but rather, is within the possession, custody, or control of another individual or entity, identify the individual or entity that may possess the responsive document and identify the responsive document that you believe that individual or entity may possess. DEFINITIONS 1. “All” includes the term “each” or “any,” and vice versa. The singular shall include the plural, and the disjunctive shall include the conjunctive, and vice versa. 2. “Commendation” includes any plaque, certificate, ornament, document, reward, or award representing official recognition by the Office of Federal Housing Enterprise Oversight (“OFHEO”) or the Federal Housing Finance Agency (“FHFA”) for contributions an employee of OFHEO or FHFA has made to either of those agencies. 3. “Communication” is used in the comprehensive sense and means every conceivable manner or means of disclosure, transfer, or exchange of oral, electronic, digital or

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 8 of 11

written information between or among one or more persons or entities, including but not limited to, writings, correspondence, meetings, conferences, conversations, dialogues, discussions, interviews, consultations, agreements, inquiries, and any other expressions or understandings, whether made face-to-face, by telephone, mail, facsimile, computer or otherwise. 4. “Concerning” means, in whole or in part with respect to, in connection with, referring to, relating to, describing, evidencing, constituting, substantiating, purporting, embodying, establishing, identifying, mentioning, reflecting, listing, stating, comprising, connected with, memorializing, recording, commenting on or upon, responding to, showing, demonstrating, analyzing, reflecting, representing, supporting, explaining, consisting of, regarding, discussing, containing, setting forth, disclosing, explaining, summarizing, pertaining to, or otherwise having any logical or factual connection to the subject matter, of the document request. 5. “Document” is synonymous with the usage of that term in Rule 34 of the Federal Rules of Civil Procedure, and includes, without limitation, writings, e-mails, reports, papers, notes, accounts, memoranda, correspondence, communications, worksheets, workpapers, analyses, contracts, charts, schedules, agreements, working papers, corporate records, minutes of meetings, books of account, ledger books, notebooks, calendars, photographs, films, slides, audiotape, videotape, appointment books, diaries, drafts, memoranda of meetings or conversations, graphs, telephone records, computer tapes, computer discs, optical discs, laser discs, computer cards and computer printouts and other data compilations from which information can be obtained or translated all electronic, mechanical, magnetic, optical or electric data, records or representations of any kind (including computer data, computer files, computer programs, hard drives, floppy disks, compact disks, tapes and cards existing on desktop computers, laptop computers, notebook computers, personal digital assistant computers, servers, backup tapes or any other medium), and any other form of physical media. 6. The terms “relate” or “relating” mean constitute, comprise, reflect, record, memorialize, embody, discuss, describe, evaluate, consider, review or report on the subject matter of the document request and also refers to documents reviewed in conjunction with, or created, generated or maintained as a result of the subject matter of the request. 7. The terms “you,” “your,” or “FHFA” mean the Federal Housing Finance Agency and any of its present or former officers, employees, attorneys, accountants, advisers, consultants, agents or any other person or entity acting form, at the direction of, or on behalf of FHFA. This definition includes, but is not limited to the Office of Federal Housing Enterprise Oversight (“OFHEO”) and its present or former officers, employees, attorneys, accountants, advisers, consultants, agents or any other person or entity acting for, at the direction of, or on behalf of OFHEO.

2

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 9 of 11

RELEVANT PERIOD Unless otherwise specifically indicated, these requests seek documents created, dated, prepared, generated, sent, received or otherwise used during the time period from January 1, 1998 to December 31, 2003 (the “Relevant Period”) or that refer or relate to all or any portion of the Relevant Period, or to events or circumstances during the Relevant Period, even though created, dated, prepared, generated, sent, received or otherwise used prior to or after the Relevant Period. DOCUMENTS TO BE PRODUCED Please produce the following documents or things in your possession, custody or control: 1. All commendations received by Deirdre Kvartunas for work she did concerning, in whole or in part, FAS 133 for the Office of Federal Housing Enterprise Oversight, including but not limited to, the commendation Ms. Kvartunas received from Scott Calhoun on May 15, 2001 referenced in Exhibit A. 2. All documents relating to any commendations received by Ms. Kvartunas for work she did concerning, in whole or in part, FAS 133 for the Office of Federal Housing Enterprise Oversight, including but not limited to, the text of any communication made at the time the commendation was announced or delivered (and drafts of such communications).

3

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 10 of 11

Exhibit A

Case 1:04-cv-01639-RJL Document 782-6 Filed 09/16/09 Page 11 of 11

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 1 of 89

WRITE, SCHNE DER, BAYLESS &. CHESLEY Co ., L.P.A.
ATTORNEYS &- COUNSELLORS AT LAW 1513 FOURTH &L VINE TOWE R

ONE WEST FOURTH STREET CINCINNATI, OHIO 45202 TELEPHONE (513) 621-026 7
FAX (513) 381-2375 FAX (513) 621-026 2

JAMES R . CUMMINS

February 6, 200 8

Daniel S . Sommers, Esq . Cohen Milstein Hausfeld & Toll 1100 New York Avenue, N .W, West Tower, Suite 500 Washington, DC 20005-396 5
Re :

Francis P . Karam, Esq . Bernstein Liebhard & Lifshitz, LLP 10 East 40th Street New York, New York 10016

In re : Fannie Mae Securities Litigation

Case No . CV04-163 9 United States District Court for the District of Columbia Dear Dan and Frank : Enclosed please find your copy of the transcript of the status hearing of February 1, 2008 .

JRC :dr Enclosure

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 2 of 89
R

Page 1

UNITED STATES DISTRICT COUR T
FOR THE DISTRICT OF COLUMBI A

IN RE : FANNIE MAE SECURITIES LITIGATIO N

Docket No . CV04-1639 (RJL)

EVERGREEN EQUITY TRUST, et al .,

Docket No . CV06-82 (RJL)

Plaintiffs ,

V.

FEDERAL NATIONAL MORTGAGE ASSOCIATION, et al . , Defendants .

FRANKLIN MANAGED TRUST, Plaintiff, V. FEDERAL NATIONAL MORTGAG E
ASSOCIATION, et al .

Docket No . CV06-139 (RJL) February 1, 200 8
>,

3 :00 p .m .

Defendants .

TRANSCRIPT OF STATUS HEARING BEFORE THE HONORABLE RICHARD J . LEO N

UNITED STATES DISTRICT JUDGE

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 3 of 89
Page 2

APPEARANCES : For the Class Plaintiffs : STANLEY M . CHESLEY, ESQ . JAMES R . CUMMINS, ESQ . MELANIE CORWIN, ESQ . Waite Schneider Bayless & Chesley 1513 Fourth & Vine Towe r One West Fourth Street Cincinnati, Ohio 4520 2 DANIEL S . SOMMERS, ESQ . Cohen Milstein Hausfeld & Toll 1000 New York Avenue, N .W .
West

Towe r

Suite 50 0 Washington, D .C . 2000 5 FRANCIS P . KARAM, ESQ . Bernstein, Liebhard & Lifshitz 10 East 40th Street 22nd Floo r
New York, New York 1001 6

For the ERISA Plaintiffs :

SAMUEL K . ROSEN, ESQ . Wechsler, Harwood, LLP 488 Madison Avenue suite 80 1 New York, New York 1002 2

MEGAN D . McINTYRE, ESQ . : Grant & Eisenhofer, P .A . Evergreen Plaintiffs 1201 North Market Street Wilmington, Delaware 1980 1 For Fannie Mae : JEFFREY W . KILDUFF, ESQ . MICHAEL J . WALSH, JR . ROBERT M . STERN, ESQ . O'Melveny & Myers, LLP 1625 I Street, N .W . Washington, D .C . 2000 6 I

For the Franklin and

(Appearances continued on the next page .)

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 4 of 89
Page 3

APPEARANCES (continued) : For Fannie Mae (KPMG action) : JEROME L . EPSTEIN, ESQ . Jenner & Bloc k 601 13th Street, N .W . Suite 1200 South Washington, D .C . 2000 5 KEVIN DOWNEY, ESQ . ALEX G . ROMAIN, ESQ . Williams & Connolly, LLP 725 12th Street, N .W . Washington, D .G . 2000 5 For Leanne Spencer : CHRISTOPHER F . REGAN, ESQ . Mayer, Brown, Rowe & Maw, LLP 1909 K Street, N .W . Washington, D .C . 2000 6 ERIC R . DELINSKY, ESQ . CAROLINE E . REID, ESQ . Zuckerman, Spaeder, LLP 1800 M Street, N .W . Suite 100 0 Washington, D .C . 2000 6 FRANCIS JOSEPH WARIN, ESQ . ANDREW TULUMELLO, ESQ . Gibson, Dunn & .Crutcher, LLP 1050 Connecticut Avenue, N .W . Washington, D .C . 2003 5 C . SIMON DAVIDSON, ESQ . McGuireWoods, LL P 1050 Connecticut Avenue, N .W . Suite 120 0 Washington, D .C . 2003 6

For Franklin Raines :

I

For J . Timothy Howard :

For KPMG :

(Appearances continued on the next page . )

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 5 of 89
Page 4

APPEARANCES (continue d

For OFHEO :

JOHN C . TRUONG, ESQ . U .S . Attorney's Office Civil Divisio n
555 4th Street, N .W . E420 6

Washington, D .C . 2053 0

Court Reporter :

PATTY ARTRTP GELS, RMR Official. Court Reporter Room 4700-A, U .S . Courthous e
Washington, D .C . 20001 (202) 962-020 0

ALSO PRESENT :

JODIE KELLEY, Fannie Ma e

Proceedings reported by machine shorthand, transcript produce d by computer--aided transcription

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 6 of 89
Page 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

P R O C E E D I N G S COURTROOM DEPUTY : Your Honor, this is the Fannie Mae Securities Litigation Civil Action 041639 . Also Evergree n Equity Trust, et al ., versus Federal National Mortgag e Association, et al ., Civil Action 06-82, and Franklin Managed Trust, et al ., versus Federal National Mortgage Association, et al ., Civil Action. 06-139 . Counsel, come forward and state your appearances for the record, please . MR . CHESLEY : Good afternoon, Judge . Stanley Chesley for Plaintiffs . Dan Sommers, Jim Cummins, Melanie Corwin for Plaintiffs, and Frank Karam for Plaintiffs, and Sam Rosen for the ERISA Plaintiffs . THE COURT : Welcome back . MR . CHESLEY : Thank you . MS . McINTYRE : Good afternoon, your honor . Megan McIntyre for the Evergreen and Franklin Plaintiffs . THE COURT : Welcome back . MR . KILDUFF : Good afternoon, your Honor . Jeff Kilduff with O'Melveny & Myers for Fannie Mae . With me today, m y partner Rob Stern and, from the company, Jodie Kelly . THE COURT : Welcome back . MR . KILDUFF : Thank you . MR . EPSTEIN : Good afternoon, your Honor . Jerry Epstein from Jenner & Block on behalf of Fannie Mae .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 7 of 89
Page 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT : Welcome back . MR . EPSTEIN : Thank you . MR . WARIN : Good afternoon, your Honor . Joseph Warin from Gibson, Dunn & Crutcher, representing KPMG . My colleague, Drew Tulumello, is with me representing KPMG . And Simo n Davidson from the McGuireWoods law firm representing KPMG . Thank you very much . THE COURT : Welcome back . MR . DOWNEY : Good afternoon, your Honor . Kevin Downe y for Frank Raines . THE COURT : Welcome back . MR . REGAN : Good afternoon, your Honor . Chris Regan, Mayer Brown, for Ms . Spencer . THE COURT : Welcome back . MR . DELINSKY : Good afternoon, Judge . Eric Delinsky of Zuckerman Spaeder on behalf of Tim Howard . My colleagu e Caroline Reid is here as well . THE COURT : Welcome back . I know you are out there somewhere, Mr . Truong . I know you are out there somewhere . MR . TRUONG : Yes, your Honor . MR . CHESLEY : You can run, but you can't hide . Isn't that the expression ? MR . TRUONG : Good afternoon, your Honor . John Truong for OFHEO . Thank you . THE COURT : Welcome back . Well, Mr . Chesley, that kind I

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 8 of 89
Page 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

of gets us to the nub of the issue today, I think . MR . CHESLEY : Well, I have several issues, your Honor . If I might be heard . THE COURT : All right . I thank the one that's going to be the biggest one is going to relate to Mr . Truong's client . MR . CHESLEY : Well, I am prepared to discuss that at the end of some other things, if I could, your Honor . THE COURT : Sure . MR . CHESLEY : I don't usually go by a schedule, but pursuant to your request, Mr . Kilduff did e-mail me about the issue that came up after we left relative to sliding or moving the schedule . I am prepared to discuss that, and I may be the minority opinion on it, but I am the Plaintiff . So if I could just go through some other things first and then, before I sit down -THE COURT : You may . MR . CHESLEY : First of all, a little bit of good news . Evergreen Plaintiffs filed yesterday a Motion to voluntarily dismiss its opt-out case subject to the understanding, wit h ]defendants, that the Evergreen Plaintiffs can participate a s class members in any recovery achieved in our class action . We, as Plaintiffs, certainly have no problem with that if they have claims . You know, they've got to prove up their claims . Counsel for Franklin Plaintiffs have advised us that the Franklin Plaintiffs are considering -- they have not agreed

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 9 of 89
Page 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to it -- whether to do the same and expect to reach a decisio n next week . We will advise the Court . THE COURT : All right . MR . CHESLEY : Your Honor, based upon the recent class certification order, we sent Defendants drafts of a propose d line form and summary notices to the class of this action, and we will work with the Defendants because our goal is to ge l notices that we can all agree on, and will submit those notices to the Court for approval., hopefully within the next week . And I might add, your Honor, you can see the 30 days have run and we have not filed any appeal . We like staying out of the Court of Appeals . We've got enough things going ove r there . So -- you know, 1 would have liked it to be a little different, but 1 am happy to move forward . THE COURT : Discretion is the better part of valor . MR . CHESLEY : Your Honor, got no problem . Went to my client and said, that's one place 1 don't need to go on that particular issue . THE COURT : Would that OFHEO had felt the same . MR . CHESLEY : Your Honor, unfortunately or fortunately, I do not speak for OFHEO . THE COURT : Fortunately . MR . CHESLEY : Your Honor, let rye go through a couple of items because we do have one that would appear to be hostil e looking, but it is not . 4

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 10 of 89
Page 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT : Okay . MR . CHESLEY : Let me first talk about KPMG . KPMG provided privilege logs for 752 documents on 12/21/07 . We are reviewing logs and we will try to work out any disputes wit h KPMG before bothering the Court . But I am going to get back to KPMG in a moment . THE COURT : Yes . MR . CHESLEY : Fannie Mae has provided 12 privilege log s to date . Yesterday, we filed, first time in four years, you r Honor, a Motion to Compel because I didn't know -- we are trying to work it out . But I do have a client, and I am not here to be critical of Fannie Mae even though I filed a motion to Compel . THE COURT : No . MR . CHESLEY : The only thing I would like to do is to hurry their response, and if they need some additional days to respond, fine . The sum and substance is that there are 150,602 documents . The 602 used to be 634, and they are the reall y tough documents and, naturally, the documents that they sa y really aren't that important are those, the ones we want to see, of course . And we have asked for those document back i n February of 1 06 .

I am not here to discuss whether it's reasonable o r unreasonable to wait two years, but I do have a client ; we want to get to the bottom of it . The 150,000 allegedly privileged documents Fannie Mae gave to the regulators, both SEC and OFHEO,

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 11 of 89
Page 10 pursuant to nonwaiver agreements . Fannie notified us of thes e 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 150,000 documents in September 1 07, but has not yet produced

them or provided a privilege log for them . They did provide a privilege log for 10,000 othe r documents, which I think now has sunk to 9,000 . Our Motion does not contain anything having to do with that because we did ge t that privilege log, and whether it came late or not, I don't care . We will review it, and if we want to add that to our Motion --- is that for me, your Honor ? THE COURT : No, no . You are important, but not that important . I MR . CHESLEY : Well, I hope not, your Honor . THE COURT : Not that important . MR . CHESLEY : I apologize, your Honor . A Plaintif f lawyer can never let a ringing phone ring without picking it up because you never know ; it :night be a client . THE COURT : We have to get that in Wiipedia here . MR . CHESLEY : All right . Okay . We were told Wednesday that Fannie Mae may produce some, but not all -- and, frankly, we can't wait any longer to make up its mind . And one deposition, but only, has been postponed, and that's the Kappler deposition . And that's one of the reasons I am going to talk to where we were relative to the order and OFHEO . So fine . On e deposition is postponed . I am not angry at anybody . Fannie Mae has their rights, but the fact that one deposition got postponed

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 12 of 89
Page II is not a reason which I am going to lead to to move the whol e
2 schedule .

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Continuing on, just -- without going into details, D .C . case law is pretty clear that any privileges waived when Fannie Mae gave the documents to OFHEO and SEC -- we got the law . We put together the Motion to Compel ., and the Court will do wha t it's going to do . And if -- we, of course, asked for th e seven-day turnaround, but if Mr . Kilduff needs additional time, that's not going to be a problem . We believe that we should get the document s immediately, or as soon as possible . And in April of '07, we had a privilege log for 635 documents -- 636, which is now down to 602 . That's how we get to 150,602 . Same issue . They gave those to OFHEO in special examination of Fannie Mae, but n o other regulators . Defendants are not -- it's not work product privilege in the first place because they were prepared t o address OFHEO's regulatory matters, not in connection with litigation . we believe that we are entitled to those . For some reason, we have a belief that the 602 may be more important than the 150,000, but that's --- you know, I have been wrong before . And, Of course, the other issue is selective disclosure to OFHEO is not permitted in this District, and they cannot select its adversaries -- and now OFHEO looks like they are an adversary -- and give documents to one and not the other . OFHO -- and I know that they appealed the most recen t

i

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 13 of 89
Page 12 order, and I was told today Mr . Warin that somebody was walkin g 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with a one-page order of a stay ---- but that's only as to that issue, which I will discuss later, which does not impact an d should not impact us or the train, and I will get to that in a moment . As you can see, I am leading up to it . I would like to talk to the Court about the depositions and then get into KPMG . Pursuant to Discovery and depositio n protocol entered by the Court -- and we worked hard and long on it -- 43 deposition have been taken ; 53 additional depositions are currently scheduled before July 31st, with the agreement of all parties . And that's very important . 53 depositions need to be taken, and -- whether that will complete Discovery or not , but let me -- we wanted to keep the July 31 Discovery deadline for now, to keep the case moving forward . Without a deadline, parties are not motivated to move a case forward . They just are not . No problem revisiting this in April, but -- fo r example, even with a July 31st deadline, KPMG -- I will get into what documents they have not supplied to us --- KPMG ha s requested 165 depositions . The Court will recall the protocol called for 140 hours, and then we can come back to the Court . But they have not taken any steps to schedule the depositions requested . 165 . You know, I am not here to discuss equity or clean hands, but the total number of depositions requested by each
11

I

U,

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 14 of 89
Page 13

1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

party --- lead Plaintiffs ; we've got the burden : 80 . Fanni e Mae -- that's all, 80 depositions . Fannie Mae, 45 . Individual Defendants, a little high, 82 . KPMG, 165 . We believe that the 165 is unreasonable, and ther e should be a ruling forthwith on that or to show cause what they are talking about or who they are or when . Now, let's go back to KPMG -- and I am sorry , Mr . Warin . We have asked KPMG twice to reconsider and reduce the number to a reasonable number . KPMG's response is som e witnesses may be added and some, perhaps many, will be dropped, but it will not take them off the list now . I have not used the words "good faith" in thi s courtroom in four years, but I am troubled by that, and the n everybody wants to come in and get a delay . I know the Court is interested in delay, and I will get to it, but let me go -THE COURT : Interested in avoiding delay . MR . CHESLEY : Pardon ? THE COURT : I am interested in avoiding delay . MR . CHESLEY : No, I am going to get to this, you r Honor . I am trying to get to the core issues . It's sort of the preamble . I am sorry, but -THE COURT : It's all right .
J

23
24 25

MR . CHESLEY : -- actually, since we had it last wee k
and this week, I'm looking at it as two hearings, so I am trying to get it all done in one hearing . And it's pretty difficult to

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 15 of 89
~F

Page 1 4

determine a realistic fact Discovery deadline when we don't kno w 2
3

how many of these 165 depositions is really going to insis t
[sic] .

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21

Now let me talk about document Discovery . for example,

We can - -

since we have had monthly status conferences, w e

can address the fact Discovery deadline at a later date, whic h we will get to . production . I covered the Fannie Mae -- and I compliment counse l
I

And now I want to talk about documen t

for Fannie Mae .

I may live to regret this during the trial, but

I compliment them because we do have this outstanding issue an d the compel, but they have been diligent . We have got 31 millio n

documents, and they have done -- they have played the gam e correctly as far as I am concerned, and I am usually a prett y ornery person, or can be . But let me go through this .

Discovery requests have been served on 80 persons o r entities and -- pardon me . Over 36 million pages have bee n To

produced to an electronic database shared by all parties .

the best of my knowledge, document Discovery is completed in th e securities class action except for Fannie Mae and KPMG on th e
privilege issues .

22 23 24 25 Mr .

However, my information is that KPMG -- and this i s Kilduff's, and I have not really discussed it with him -- m y

information from the correspondence and the e--mails and back an d forth, they have turned over only 3-1/2 million documents . They

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 16 of 89
Page 15 started receiving requests for these documents -- and my timin g 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you . may be wrong, but it looks to me like it's back in Is it '06 when first KPMG -MR . EPSTEIN : July MR . CHESLEY : July 1 07 . 1 07 these documents were -- than k 1 05 --1 06 .

By the way, we are against each other, but I just bring i t

to the Cour t MR . WARIN : Not evident to me . MR . CHESLEY : Well -- I'm sorry . THE COURT : That's good faith . MR . CHESLEY : So they have produced 3-1/2 million and refused to tell them what other ones are out there . It's no t our fight . We don't have a dog in that fight . However, I don't know what these other documents are going to be and whether they are important or not . Now, there used to be a rule that you had to fil e within 30 days or then you would work out a serial filing so you don't file them all at once, but you don't just stay dormant for nine or ten months, then put out a list and a request to us for 165 depositions, don't give Fannie Mae the documents -- o f course, anything Fannie Mae gets, we get, and we are not -- we haven't gotten them either . So before we rush to judgment about this big potential delay -- I am trying to crystallize this . And let me just go through a couple of other items, your Honor . 1

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 17 of 89
Page 16 KPMG's Motion for reconsider in the Franklin opt-ou t 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 case for dismissal ., that's an outstanding Motion . And one of the things that I want to talk to the Court about is we have a Motion for Reconsideration of a Motion to Dismiss based o n Tellabs . Your Honor, without getting into a lot attention o n this, we had an opportunity to see the new Seventh Circuit case written by Judge Posner on that issue . We are more tha n prepared to argue it . I think this Court has heard enoug h arguments, but I think the sum and substance of Tellabs -- and this decision was rendered -- and of course, I will file it - on January 17, 2008, knowing full well we would be here o n February 1st, your Honor . And the citation is number 04-1687, Makor Issues & Rights versus Tellabs, Inc . And Judge Posner, on the remand , says as follows : We conclude that the Plaintiffs have succeeded with regard to the statements identified in our previous opinion as having been adequately alleged to be false and material and pleading scienter in conformity with the requirements of th e Private Securities Litigation Reform Act . We, therefore, adhere to our decision to reverse the judgment of the District Cour t dismissing this suit . It's a much weaker case than ours, and the -- Judge Posner goes on to say, The critical question, therefore -- at page 11 -- is how likely is it that the allegedly false
I

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 18 of 89
Page 1 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

statements that we quoted earlier in this opinion were th e result of merely careless mistakes at the management level based on false information vetted from below rather than of an intent to deceive or a reckless indifference to whether the statements were misleading . It is exceedingly unlikely . That no member of the company's senior management who was involved in authorizing or making public statements about the demand for the 5500 to 6500 knew that they were false i s very hard to credit, and no plausible story has yet been told the Defendants that might dispel our incredulity -- I can' t pronounce the word . THE COURT : Incredulity . MR . CHESLEY : The point I am making, your Honor : We are happy to stand here, argue, brief, we will file a copy of this as a supplement, but we believe that the issue of Motio n to -- they've got another shot ; it's called a Motion for Summary Judgment . Let's go through the depositions, and if they've got a good case, come tell us . They also have a shot at a directed verdict . So if the Court says we want you to be prepared , Mr . Chesley, to argue it, we will . But I just don't want to waste the Court's time, nor am I being presumptuous that they don't have a good matter, but particularly in view of what the Seventh Circuit did, I just don't see where they are coming from . by

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 19 of 89
Page 1 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

So that's one outstanding Motion . The other is the Franklin opt--out is reconsideration - we don't have a dog in that fight . And the other issue, your Honor, is the derivativ e cases . They are back . That's -- a Motion to Dismiss hearing was held on December 18th on Kellmer and Middleton derivativ e cases . Arthur derivative case was filed in D .C . Court, has not yet been moved to Judge Leon, but .it's a little similar --- and I

know it's fellow Plaintiffs, but it's a little similar to what I am talking about here in Tellabs on the Motion fo r Reconsideration . I thought this Court spent a tremendous amount of time on the issue of the derivative case . Any claims that would be handled derivatively can be handled in the securities . I have had securities cases before where we have done governance as part of a settlement or an adjudication . And it's just something out there because, believe me, you know, there's other people laying in the woods, and I guess that's the new style . Motions to Dismiss were foreign to me, your Honor, 20 years ago, and now there is no case I have that doesn't have a Motion to Dismiss and a Motion fo r Reconsideration . I mean, that's a brand new -- it's not even in the books . The Motion to Dismiss compensation hearing was held on 12/3 in ERISA .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 20 of 89
Page 19 Now, your Honor, I would like to get to the Court . 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 read the Court's transcript -- and, by the way, on the KPM G documents, as long as I am picking on Mr . Warin -- Melanie gave me this note . On December 15th, the document productio n deadline in Case Management Order number 4 was, I believe, four months past due . And all I am saying, your Honor -- I have no problem delaying, but what I would advocate to the Court is let us take these 53 depositions . Let us go forward . I am the one that suffers the most because I have got the burden of proof . And if I don't have every last document, I am the one that should really have something to say . So far, we have had one deposition delayed, and I am fine with it . Vet's move on our schedule ---- I assume we are going to see yo u probably in March---- and give you a report in March and no later than April . So long as -- I saw this Court in action wit h OFHFO, and great progress was made . And I trust that this Court will cause something to happen relative -- not on my Motion to Compel . We can live without -- we will work it through . Bu t the issue of documents and 165 depositions, this is what this Court needs to do, is to address those issues, and then . -because I am afraid if we make the delay today and we extend it six months, it's like a union negotiation . For some reason, they never settle the strike unti l 11 :35 when they are going to walk out at 12 :00 noon . And if you extend the date, there is no reason to settle the strike . I

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 21 of 89
Page 2 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Frankly, I believe that there is nothing like a n Article III court to put pressure on people that have not -- who have violated -- these management orders, case managemen t orders, were agreed to by the parties, and I think that's significant . The protocol of 140 hours of depositions wa s agreed to by the parties after hard laborious work, and signed off by the Court . It wasn't mandated by the Court . The Court said, let the parties work it out . I have come to the conclusion that most of the parties are working it out, and I would like to see some action on the delay in documents and this 160 -- before we start giving blanket delay in the case . That's my story for the day, and I am sure you have heard me long enough . And I am sorry I wasn't here last time, your Honor . I wish I had been . I was not successful in my case, which shows you that sometimes you get the bear an d sometimes the bear gets you . So hopefully I will do better in this court . Thank you, your Honor . THE COURT : All right . Thank you, Mr . Chesley . MR . ROSEN : Sam Rosen for the ERISA Plaintiffs . Good afternoon, your Honor . THE COURT : Welcome back . MR . ROSEN : I just want to point out that we have will probably be taking four, maybe five depositions that -- I don't know if anybody else is interested in them, and the we a

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 22 of 89
Page 2 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Defendants still want to take the depositions of the clas s representatives . I don't know if anybody else -- I am sorry . Fannie Mae wants to take the depositions of the clas s representatives . I am not sure how many people here will b e interested in those depositions, so I don't know as they will be taking up anybody's time . My depositions on the plan benefit committee member s who won't be deposed by anybody else will not be lengthy, and we are working out schedules now for all these depositions . Just wanted to bring that to the Court's attention . THE COURT : That sounds good . MR . ROSEN : Thank you, your Honor . THE COURT : Thank, sir . MR . KILDUFF : Good afternoon, your Honor . THE COURT : Mr . Kilduff . MR . KILDUFF : A couple of loose ends, and then I will address more substantively some of the issues raised b y Mr . Chesley . First of all, we did receive class notice thi s week from the Plaintiffs . We are reviewing it . We didn't get a chance to lock down a final draft for approval by the Court, but we expect to do that in short order, and I would very muc h expect, before our next status conference, that your Honor will have a class notice that the parties have agreed upon . Secondly, the Arthur case -- I believe you heard me mention that once before . That was a new derivative case . We I

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 23 of 89
Page 22 have filed with your Honor a courtesy copy of a notice of th e 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 filings before Judge Friedman . The case went to Judge Friedman . We filed a related case notice . It was opposed by th e . Plaintiffs, which I have not seen before . THE COURT : On what grounds ? MR . KILDUFF : That it was sufficiently different that it ought to go to Judge Friedman . I think -- my persona l thought is that because we raised issues about these being the same lawyers who brought the Middleton case, and that those two theories that you can represent different derivative Plaintiffs at the same time with different theories doesn't really fly when . you have got the same law firm -- and I touched on that whe n Mr . Baron was here . So they are trying to keep that with Judge Friedman . We obviously believe it's related for the reason s we've have set forth in our papers . But I just wanted t o highlight that for you because I mentioned that before, and then the briefing ensued and it slowed things down . I would have thought it would have been assigned to you by now, but it doesn't appear to have been . THE COURT : So has Judge Friedman received your papers in this matter yet ? MR . KILDUFF : Yes, he has . And those are the ones --we sent you our original form of related case . It was the n opposed in an eight- to ten-page brief by the Plaintiffs . And then we filed a reply to their opposition since we never had an I I

41

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 24 of 89
Page 23 opening brief . And I don't know if they intend to file anythin g 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
17

more . I haven't heard anything from them on this . Just checking . Mike, anything ? MR . WALSH : Still maybe . MR . KILDUFF : Still maybe . Well, I guess they are hinting at a sur--reply or something . But, anyway, we expec t that you will see that soon enough because it does appear to be so -- obviously a related case . Mr . Chesley noted that there is a Motion to Dismis s between the Plaintiffs and KPMG . We obviously don't have a dog in that fight . Suffice it to say, though, anything that keeps the case moving forward and gets things resolved, as long as it doesn't slow things down, we would like to see things resolved, and we would like to move past any outstanding Motions . You know, I don't hear anything from the KPMG side suggesting that that, for any reason, will slow down th e
Discovery .

18 19 20 21 22 23 24 25

But let me get, then, to the latest Motion that was filed, this time against us, on a Motion to Compel by th e Plaintiffs . And I am not here today to argue the merits, but I would like to address a few points, just to clarify . THE CURT : Sure . MR . KILDUFF : First of all, as your Honor well knows, you know, one can stand on one's privilege as a matter of right, and that's simply what Fannie Mae is doing . We have tried over

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 25 of 89
Page 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the last year and a half to
work out a compromise . There wer e

many documents in there that we felt, although they were privileged, that we could negotiate some type of release, whether it's through protections of a Protective Order or something . Unfortunately, after many, many, many months, we were unsuccessful in that effort . In the meanwhile, we did log 10,000 documents which are not being challenged at this point in time . There is this very small, set of 600, and then this larger set that was mentioned by Mr . Chesley of 150,000 . The point I want to clarify is Mr . Chesley said tha t those 150,000 had all been supplied to or released to OFHEO, the SEC and other regulators . That's not entirely accurate . There is a large group that only went to OFHEO . OFIEO compelled us to produce those to them under their examination powers . we did so

under a nonwaiver agreement, and it is that group that we most strongly feel on general principle grounds, in terms of a n ongoing relationship with a regulator, that we have every right to assert our privilege . And we will be prepared to fully brief that point and argue that point . Currently, the papers suggest a seven-day opposition brief from us, and I think I heard Mr . Chesle y suggest that maybe he would give us more time . We would like the normal amount of time, which I think is 14 days, under the

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 26 of 89
Page 2 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Court's rule, for an opposition brief, otherwise - MR . CHESLEX : I have no problem, your Honor . MR . KILDUFF : Thank you., Mr . Chesley . So that addresses the Motion to Compel that was filed against us . THE COURT : How many of those 150 are attorney-client? MR . KILDUFF : Versus work product ? THE COURT : Let's just say qualified versus not qualified . MR . KILDUFF : I honestly don't have a number . My gut tells me it's about 50/50, that -- 50 that would be wor k product, pure work product, and then 50 percent maybe attorney-client and work product . The work product that I am talking about, though -- and this is what makes it so difficult to release them ; it's no t because there is -- the content of them is damning in any way . It goes directly to the mental impressions of the lawyer s involved in responding to the special exam, which are the very A
1

same issues that have been brought by the Plaintiffs in this lawsuit . And So it will give them a unique window into the lawyers' thinking about the very accounting issues tha t ultimately formed the basis of the OFHEO report which was incorporated by reference and formed the basis of th e Plaintiffs' complaint .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 27 of 89
Page 26

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

And so it's because of the nature of those documents and the fact that they are mental impression work product that would give them such an unfair advantage in terms of the way we are looking at the defense of this action . And, again, we intend to fully brief that, but thi s isn't a matter of just taking every document that we think might have touched a lawyer's hands and stamping it privileged . W e have taken an enormous amount of time and effort and dollars , that I wouldn't even want to try to calculate because my client is in the courtroom, in terms of determining, first, are they responsive? Second, are they privileged? Third, whic h privileges? And then, fourth, in our efforts to try to figure out if we could release some of them, to what extent do we feel that the release of those documents would give the Plaintiffs an unfair advantage versus a smaller set of really core menta l
y

r3 impression work product ? And that is still where we are struggling on th e fringes . We expect to resolve that final question probably next week . But by the time we get here before your Honor at the next status conference, we will have made that decision and we will have fully logged every privileged document that we ar e withholding in response to the Plaintiffs' document requests . THE COURT : Now, at some point -- and, of course, this is the exact same problem I am now faced with as it relates to OFHE© . At some point, decisions will have to be made with

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 28 of 89
Page 27 regard to whether or not the particular claim of privilege, i f 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it's challenged, is going to stand or not . Someone is going to have to make that decision . MR . KILDUFF : That's right . THE COURT : I don't think I will be the first one who is going to do that . There's basically two options that I have been weighing in my mind . One is a magistrate Judge . They are very busy people, too . And the other is a former judge of our court, possibly, to be brought in as a Special Master for tha t exclusive assignment, to deal with challenges of a privilege - to privilege claims that are being made in the litigation in the case -MR . KILDUFF : Right . THE COURT : -- with an understanding -- at least in the first instance I think this would be preferable from all points of view -- that he or she will be the final word . It's no t going to be appealed to me . MR . KILDUFF : Okay . THE COURT : So we are talking about getting a n Article III judge, possibly, who will basically make a call . So be thinking about that . Now, obviously, retired judges don' t work for free . The parties will have to work out a n arrangement . I wouldn't even hazard a guess what the going rate would be on an hourly basis . I have no idea . It probably might depend a little bit on the Judge .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 29 of 89
Page 2& But from an expeditious point of view, T think it ma y 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 . 22 23 24 25 be the quickest way to deal with the problem because ou r Magistrate -- we only have three Magistrate judges in thi s district, 15 active judges, and two senior judges . They are very busy, and they have criminal dockets and they have a lot going on . So to tie one of them up in a multi-layered series of challenges on a privilege basis -- it would be very hard and it would elongate things quite a bit . MR . CHESLEY : I don't mean to interrupt, your Honor, but I have already made up our mind . We are prepared to d o that . We think the Special Master is fine . We think a Special Master should be paid a reasonable fee . And my view is some of this may be substantive relative to whether or not you can have a selective privilege . So they may be ruled one way or th e other without having to look at them because that's a threshold issue : Can you give them to OFHEO? And the suggestion that, well, we only gave them to OFHEO ; we didn't give them to SEC - the law, we think, is clear . So that's the first threshol d issue, and we are happy to have that resolved by a Special Master . And then, after that, look at the other because i t appears to me that that's a threshold issue that would apply to any and all documents that were received by OFHEO because they can do a nonwaiver, but they can't do a nonwaiver that applies

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 30 of 89
Page 29

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

to us . Anyway, I didn't want to interrupt . All I am saying is we are prepared, and we don't need do any additiona l consideration . We think that's a great idea and fair, naturally, to this Court and to the Magistrates . MR . KILDUFF : Your Honor, we have used in other cases a Special Master for a purpose like this, and it has been ver y successful . I would like to take it to my client and discuss it . THE COURT : Sure .

MR . KILDUFF : But I do think there is a threshold issue which Mr . Chesley touched upon, and I think that's for you r

I
Honor, though -THE COURT : And some other courts across the river that say, take a minute . Take a minute . MR . KILDUFF : Do you want me to take a minute ? THE COURT : But this isn't across the raver . we are not across the river . MR . KILDUFF : But I do think there is a threshold issue, and I do thank it's for your Honor . And that is -because it may result in no challenges . If we prevail in our argument that -- with this nonwaiver agreement and with th e nature of the documents that were demanded by our regulator and then were ultimately produced pursuant to a nonwaiver agreement, if that is upheld --

r

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 31 of 89
Page 34 THE COURT : I think I will have to resolve that issue . 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 there . THE COURT : Well, we are trying to get ahead of the curve here a little bit, I think . I think I am going to end up having to resolve that kind of issue preliminarily . MR . KILDUFF : Right . THE COURT : There may be, in the OFHEO situation, even some preliminary issues that I will have to deal with . I t wouldn't be fair to the Special Master . He or she will probably be able to move much more expeditiously -- they don't hav e staff, you know . They are going to be able to move much more expeditiously if some preliminary issues have been resolved . And then it's more a question of just exercising their good judgment as to any given challenge in any given case . MR . CHESLEY : We think that's fine . The only part I disagree is I don't believe, no matter how this Court rules on that threshold issue, that that closes the door as to the rights of some of these --- keeping it privileged . In other words, even if we were to be ruled against, we still feel it's an issue for the Special Master to take a look at some of these documents on i what they claim to be privileged . So that was the only part I disagree on . THE COURT : All right . MR . CHESLEY : Otherwise, conceptually, we are totally
a

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 32 of 89
Page 3 1
1 MR . CHESLEY : Fine .

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT : I think we are going to have three o r four weeks for you all to be noddling this and talking amon g yourselves . You have been very successful to date in working a lot of thing out preemptively . And God knows in the OFHE O situation, I have thrown that same idea on the table weeks ago with the counsel in that case . So -- now, of course, the Court of Appeals operates on its own timetable . Indeed, I can't help but notice that they have granted -- interestingly, they hav e granted an emergency Motion for a stay pending appeal prior to my acting on the request for a stay pending appeal . So that's a kind of curious way for them to operate . But that's their prerogative, as the Court of Appeals . So there is a stay pending appeal in the OFHEO matter until February 6th when briefs can be filed or whatever . MR . KILDUFF : Well, that leads into the scheduling issues that your Honor raised last Friday, and the documen t issues . Let me start with kind of the documents, the bodies - the two bodies of documents that are really holding things up . There are the OFHEO documents . They relate, though, to, I believe, a more discrete group of witnesses . And so even if this gets wrapped up in the Court of Appeals, I don't think it will be as big an obstacle or'impediment to moving this case along . 1 think the bigger obstacle right now, from our
I

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 33 of 89
Page 32 perspective -- and a Motion was filed by Jenner & Block, who ha s 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the malpractice case -- and Mr . Epstein will address this further . But the bigger obstacle right now is getting th e documents from KPMG . We had a hard 12/15/07 deadline . Fannie Mae produced, I think, 27 .5 million pages by that deadline . We were in substantial compliance . We took our obligation s seriously . We met those obligations . We have identified little pockets here and there for supplemental productions . We are timely making supplemental productions . But we complied with the Court's Order and the 12/15 deadline . KPMG has not given us a deadline yet for when they will produce the documents that should have been produced by 12/15/07 . THE COURT : I am sure Mr . Warin is going to tell me that today . MR . KILDUFF : And Mr . Epstein is here to elaborate further on all the details . But suffice it to say unless w e know when we are going to get the documents, we are a little bit of loss in terms of the scheduling issues you raised . But more importantly, we want the documents . We want to get documents . We want to prepare for the depositions . We want to take th e depositions and we want to move forward . And Mr . Chesley said that he is ready to move forward with these depositions in any event . These 53 depositions, he is ready to go forward . He has the burden . He suffers the

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 34 of 89
Page 3 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 15 17 18 19 20 21 22 23 24 25

most, I think was the term . He doesn't suffer the most, your Honor . I think Fannie Mae will suffer the most because the KPMG folks --- and they can correct me if I'm wrong, but I believe they are taking th e position that they will have the right to recall any witness if later documents are produced that are relevant to subject areas of that witness' testimony . What that means is there would be a possibility, under their theory of the world here, of me and my client
having t o

twice go through the process, and that is an enormous burden and expense . THE COURT : That's not really an option . MR . KILDUFF : And so -- that isn't an option, and that is what's going to throw the schedule off . THE COURT : Now, let's be clear about this . I hav e told the OFHEO litigators on behalf of the individual Defendants repeatedly -- and I am not going to back off this -- that they are not going to be prejudiced, as it relates to Discover y depositions or whatever, by OFEO's position . Okay ? OFHEO has rights . They are seeking to vindicate their rights . Lord knows I have tried to come up with alternativ e ways to solve that problem . I have spent innumerable hours with counsel to both sides in that conference room . I did not succeed . But I am not backing off m y position to those three individual Defendants . They are not

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 35 of 89
Page 3 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 8 19 20 21 22 23 24 25

going to be harmed . Now, if the translation to their not being harmed is, you know, the depositions of the relevant parties will have to be delayed until all the documents are forthcoming, at the end of an appellate process in the D .C . Circuit -- but I am no t inclined at all to allow a yo-yo thing where, you know, witness in, witness back, witness in, witness back . That's not --I

don't think that's fair to the parties . It's very expensive . So as you all are putting your seasoned heads together on how to resolve this very practical problem, bear that i n mind . I am not inclined to do that . And I will not go back on my word to the individual Defendants' counsel . I don't think it would be fair, and I am not changing my course on that . So that's a very practical problem . Would that OFHEO had seen it differently . I did everything short of pleading with them . I couldn't convince them . I tried my hardest . I gave them all kinds of alternatives . But they have a fixatio n on their need to go to the D .C . Circuit on this issue . So be it . So be it . But as I warned them, be careful what you wish for . MR . CHESLEY : You don't see us in the Circuit, your °s Honor . THE COURT : Be careful what you wish for . Mr . Truong has a difficult client . So we will see what the D .C . Circui t says . We will see what they do . We will see how they weigh the

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 36 of 89
Page 3 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

equities of the circumstance . I tried to impress upon them that the stakes here are much larger than their vindication of qualified privilege on a work product privilege basis, much bigger on a matter o f considerable national significance where there is n o precedential value to future circumstances, in my judgment, at all . Zero . None . It could never be used against them again . So -- my persuasive powers are limited . Article III . That only takes you so far . MR . KILDUFF : Well, your Honor, that brings us up to you're asking us to put our heads together about how we dea l with the slippage on the schedule . And I guess I have a couple of thoughts on that . One is Mr . Chesley says you need a date in order fo r the strike to be settled . If you don't have a date, you are not going to settle the strike . I can't disagree that we need a date here, but I don't think it's the date to keep the fact cutoff period where it is now, because I think we all have to acknowledge that is gone . I mean, we just aren't going to have the documents we need to -THE COURT : You have got to build in the challenges . Now, if we are going to have a Special Master, ideally it would be someone who would be walling to take on both problems, the OFHEO problem and the other problem, the Fannie Mae/KPMG . don't know how many problems are going to be put under one I

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 37 of 89
Page 36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 umbrella here . God love him or her -- but, you know, I may not be able to persuade someone to do this, so that's a separat e issue . I may have to get a lawyer, a retired lawyer or something lake that . But the point is that this is not a small job . This is not a small job, and it has to be done fairly expeditiously . I mean, not -- you know, it's obviously not eight hours a day , five days a week, but, you know, without staff, you know, making a lot of calls, it's not an easy job . So it's not going to take days . It's probably not going to take weeks . It's probabl y going to take months because I don't think there is anyone out there who is going to do it five days a week, eight hours a day . That's just not -- that's not realistic . So you start thinking pragmatically . You're probably talking about someone spending a couple of days a week, two or three days a week . You get all of his or her time . And maybe they are doing it, you know, four or five weeks in a row an d then taking a break for a week and then four or five weeks in a row . They are not going to have write any opinion, obviously . That's good . If there is no appeal built in, then that's good . That saves time . But it's still difficult, tedious work, and it' s important . I am not saying it's not important work, but it's difficult and tedious work, and it's going to take months, not weeks .
a

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 38 of 89
Page 37 So both sides need to continue thinking through, okay , 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 well, what are the practical ramifications of this if he's going to honor his pledge to the individual Defendants, which I will -- and I am going to come up with a system that's going to resolve these issues, then -- and, of course, if the Court of Appeals takes a year to rule on OFHEO's appeal, do the math . Guantanamo detainers, been up there a couple years . So -- now, you know, Congress legislated, but, o f course, Congress can always legislate in this arena, too, but - I don't know . It's a practical problem . MR . KILDUFF : It is . And what we thought was a practical solution, instead of keeping the cutoff date o f 7/31/08, instead -- and you are going to hear about the Motion more from Mr . Epstein in a minute . But on the show cause as to when and -- when we are going to get the documents from KPMG , once we get clarity on the completion of that Discovery, I think we can use that date to set our sights on some other cutof f dates, maybe not as to OFHEO witnesses that will b .e impacted by the OFHEO documents, but I am hopeful that with respect to a lot of witnesses, we can continue down the path of depositions once we get the KPMG documents . So I would suggest that we do need a date, but it's not keeping hard and fast the cutoff date, but rather let's get the production done from KPMG, and from that date, let's talk abou t where the cutoff would be at least as it respects the witnesses

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 39 of 89
Page 3 8

who are not impacted by the OFHEO production .
2

That would be ou r

plan . And I think that others have a similar thought on this , and obviously the KPMG folks will speak on that, but I don' t think we are too far off the notion of maybe spending the nex t month between now and the next status conference to see if w e can firm up a little bit better the framework within which w e
would work .

3 4 5 6 7
8

9 10 11 12 13 14 15 16 17 18 19
20 C ouns e l .

THE COURT : the equation,

Well,

on the -- on the Fannie Mae side o f

the Plaintiffs have the benefit of havin g On the OFHEO side of the equation, th e

privilege logs .

individual Defendants won't have the benefit of having privileg e logs until the end of the month . MR . Honor . THE COURT : would phrase it . Judge, That wasn't quite the way I was hoping yo u absolutely , TRUONG : Right, Mr . Truong ? you r

That's what we are working towards,

I thought you would phrase it,

it will be done . Well, you have a window into the problem there ,

21 22 23 24 25

So I am hoping -- and I think the individua l Defendants' counsels are hoping that when they have th e they will have a better, independent of th e

privilege logs,

order outstanding right now to produce -- the qualifie d privileged documents are work product privilege -- deliberative

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 40 of 89
Page 39 process, excuse me, deliberative process privilege -- that the y 2 3 4 5 6 7 8 9 10 11 12
13

will be in a better position to assess how many challenges they a are going to need to do and the breadth of their challenges , although only to a certain degree because it's hard to say from a privilege log alone . But we will know more come early March than we know today on that side . MR . KILDUFF : Yes . THE COURT : From your side, they have already probably started sizing up your claims of privilege, whether they think they can challenge them . MR . KILDUFF : Right . So those are the issues I had for you today, your Honor, and I would like to pass it to Jerr y
Epstein .

14 15 16 17 18 19 20 21 22 23 24 25

THE COURT : Sure . MR . KILDUFF : Thank you . THE COURT : Welcome, Mr . Epstein . MR . EPSTEIN : Thank you, your Honor . Mr . Kilduff has explained, I think, the general state of affairs exactly right, and I just wanted to flesh out a few of the details , particularly as it pertains to KC'MG's production . The parties really have worked cooperatively throughout this entire case to resolve a whole array of Discovery issue s without needing to bother the Court at all . The problem is that this one really stands out in degree and kind as an issue o f when will the production be complete? It's not something of

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 41 of 89
Page 40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
16

going into the weeds of a privilege logs, which may well be appropriate and more efficient to have a Special Master, bu t it's simply a question of a deadline that hasn't been met, and they won't even tell us when they are going to complete their production . So if I can just back up a little bit to go over what the document productions have been generally in terms of th e schedule, Fannie Mae has produced long ago 22 million pages of documents . We have spent literally thousands and thousands of hours on our document collection and production efforts . on top of the 22 million pages that we produced, we got a request from KPMG -- and last summer and last fall our people worked seven days a week around the clock to get those documents ready for the December 15th deadline . And we produced another 4 .8 million pages of documents in response to KPMG's reques t
alone . a

17 18 19 20 21 22 23 24 25

Beyond that, we have taken the extra step of helping to facilitate third-party productions . So KPMG served a subpoena on Ernst & Young, they served a subpoena o n PricewaterhouseCoopers, and in the course of that, we learned that there were literally several hundred boxes of thos e parties' documents in space that they had been using at Fannie Mae . And we didn't start to argue technicalities of, well, they have the ownership of the documents ; it's a third-part y subpoena ; it's not Fannie Mae's problem .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 42 of 89
Page 41 We stepped up to the plate on our dime and we produce d 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 another 900,000 pages of those parties' documents from those boxes . So, all along, we have been trying to get these documents out . We have been working very hard . We have produced 4 .8 million pages in response to KPMG's request, another 960--some-odd thousand third-party documents . But I am not going to stand here and say everything ha s been perfect, there's never, ever been a hitch . I thank in this day and age of electronic Discovery and massive gigabytes o f data, there's always going to be issues that we have to wor k with . When there have been a need for supplemental productions,
I

we have advised them of that . We have said, we found this other collection of documents ; here is the estimated volume ; here os when we are going to get them out . And then we delivered o n that . And that's ---- if that were all the issue here today with KPMG's production, I wouldn't be here, I wouldn't have had to file a Motion . If all we were talking about was that KPMG did a robust production by the December 15th deadline, and then had a fe w supplemental productions after that with an actual end in sight, I wouldn't be here . But we are dealing with precisely the opposit e situation . We served our request on July the 2nd, 2007, t o KPMG . They produced less than 10 percent of their production by i

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 43 of 89
Page 42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 . 15 16 17 18 19 20 21 22 23 24 25 the Court-ordered deadline in the Case Management Order . Les s than 10 percent of that production came in by December 15th . And, even then, we did not come to this Court because we realize this Court has plenty of other things on its docket, and w e tried informally a number of times --- and this is documented in our Motion to Show Cause where we said, all right, we understand you are a little late, but please just tell us when you ar e going to finish your production and what the expected volume is . We asked them that, and they wouldn't answer . And we still didn't come to court . We asked them again, and the y wouldn't answer . And it really is only after four or five time s where we cannot get an answer THE COURT : Did they say they wouldn't answer or that they couldn't answer ? MR . EPSTEIN : They said, we don't know yet ; we will get back to you . THE COURT : So they were saying they couldn't answer . MR . EPSTEIN : That may be the right interpretation, but 1 can't read their mind . THE COURT : Well, it's an interpretation . MR . EPSTEIN : All I know is 3 million pages o f documents were produced more than a month after the deadline with no explanation : our server crashed . I don't know what happened . They just keep coming in with no end in sight . And this is going to have an effect . It's going to

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 44 of 89
Page 43 1 have a snowball effect .

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ends .

There are several reasons why we actually need to know when this production is going to finish, and we need an order --we would ask for an order that it actually be completed in th e next week . First of all, as a number of people have said, we have got a lot of depositions around the corner . These documents ---KPMG has said, well, the KPMG witnesses are not for a while . But KPMG was working with Fannie Mae's people day in and day out for years and years . KPMG's production very much relates to the Fannie Mae witnesses as well, and as has been said before, it is not fair for Fannie Mae to have to put up its witnesses and then to have them get recalled later because there are additiona l documents . So it has a snowball effect if this production never

I should is add that in addition to this firs t production, which has not been completed, KPMG has served two more requests for production on Fannie Mae, and we have served another request on KPMG . So there is no question about the fact document production is going to continue in this case, and we do face the problem of what to do about the depositions . I think Mr . Kilduff is right . We are just going t o have to sit down and talk to the other parties about what we do about this because we are not going to produce our witnesses

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 45 of 89
Page 4 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

more than once as the documents roll out . But, you know, at least they have got to finish th e 2007 .

first production which was due December 15,

The second thing I think is important to point out i s we do have a lot of substantive concerns with the adequacy o f their production, but we can't raise those while they continu e to say there is more in the pipeline, pipeline . Whether your Honor or a Special Master, I am sur e there is more in th e

you would not want to see a series of Motions to Compel that ge t updated every time the production comes in . efficient for anybody . So unless we get a firm date and that they complet e that production, what's not . There is one other issue that I think is very importan t about this timing, and that is in the Case Management Order deadline was set for serving final requests for production, deadline of January 15th, 2008 . This was KPMG's request . a a KPM G we can't even determine what's missing an d That's no t

said, we don't want to have serve our final requests fo r production in 2007 because the documents are supposed to come i n on December 15, 2007 . So everyone should get 30 days to look a t

those documents and frame their final requests for production . That's what we did . We served our final requests fo r 2008 . Later that day,

production the morning of January 15,

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 46 of 89
Page 4 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
25

they produced 300,000 pages . The next week they produce d another million and a half pages . All told, the count is up to something lake 3-1/2 :pillion pages of documents . More tha n 90 percent of their production came in after our deadline for serving our final document requests . So one of the types of relief that we have asked for in our Motion to Show Cause is that we be given 15 business days , which is a little tight -- probably should ask for more, but 15 business days to serve final requests for production after their production is actually complete . And I do want to emphasize one other thing, and that is that the Court has talked about the possibility of a Specia l Master, and if we do go down that route, there are all kinds of detailed Discovery disputes that a Master might be able t o address, but I do think that this issue of completing th e production is something that's a threshold issue akin to what we were talking about before of whether there is a waiver b y producing documents to the Government, the kind of threshold issue that we think this Court should resolve, order KPMG t o complete their production by next Friday, and then once we know it's complete, then we can decide how to deal with the mor e specific disputes that come out of that . And I am happy to answer any questions if the Court has them .
THE COURT : That's fine, Mr . Epstein .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 47 of 89
Page 4 6

1 2 3 4 5 6 7 8 9 10 11 12 13 1.4 15 16 17 18 19 20 21 22 23 24 25

MR . KILDUFF : Thank you, your Honor . THE COURT : Thank you . MR . KILDUFF : Your Honor, if I may correct a prio r misstatement of mine -- I shouldn't take the red eye in from Sacramento on the night before a hearing . The firm that filed the Arthur case -- I misspoke . I got my derivative suits mixed up . The Middleton Plaintiffs are represented by the same counsel in the Wayne County action, the lead Plaintiffs for the derivative . Those were the overlapping counsel . That law farm's brother's law firm, Robbins Umeda, brought the Arthur case . But Arthur actually brought a

derivative case that was consolidated into the Wayne County case . So there is that overlap, but I just had the wron g firms . Robbins Umeda brought the new Arthur case, and they are not the ones that brought Middleton, nor are they the ones i n Wayne County or in Pirelli, but they did file back in '04 before your Honor, and they were then consolidated in . But I jus t wanted the record to be clear because I got my law firms mixed up . THE COURT : This could be the litigation equivalent of I "who's on first . " MR . KILDUFF : It certainly is, and every time I turn around, somebody else is filing a new derivative suit .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 48 of 89
Page 4 7

1 2 3 4 5 6 7
8 9 10

MR . CHESLEY : I have a resolution on that one . THE COURT : Oh, dear . MR . CHESLEY : Your Honor, can I -THE COURT : No, no . Mr . Warin MR . CHESLEY : Two minutes . THE COURT : He has been taking a lot of hats . No, no, no . You can always step out . You have partners here . MR . CHESLEY : Thank you . THE COURT : Well, Mr . Warin ? MR . WARIN : I thought Mr . Truong was the pin cushion , your Honor . I didn't realize that KPMG had become the pin cushion . THE COURT : The designated hittee . MR . WARIN : I guess that's right . Isn't i t interesting . Quite a cabal between Chesley and Kilduff . What interesting bed mates . And then throw Epstein in to boot . This is Joseph Warin representing KPMG, the Defendant in the matter, your Honor . Let me set a couple of thing s straight . THE COURT : Mr . Chesley wasn't here when you said that . MR . WARIN : I will repeat it because I will probably be talking when he comes back, your Honor . And I will pretend like I am in mid-sentence so he will know that I am talking abou t him, and it, I am sure, will elevate his ego a little bit . Your Honor, I would like to get a hard date, please, t o i s going to ---

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 49 of 89
Wage 48 argue the Tellabs Motion . It's fully briefed . It's ready t o 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 go . Mr . Chesley, if he wants to file a supplement with th e Seventh Circuit -- but it's absolutely ripe for argument, and if we could get an argument date, it only relates to KPMG and th e Plaintiffs . O'Melveny is not involved . Jenner & Block is no t involved . No one else is involved . So if we could get a date at some point to argue that, that would be great, your Honor . It's fully briefed . If they want to file a supplemental with Judge Posner and try t o distinguish where the jurisprudence lies from the Supreme Court, they can have it . But this is a very meritorious Motion . We wouldn't have brought it otherwise . It's quite clear, both from the echos from the Supreme Court in Tellabs and then the ripple effect of that throug h District Judges like yourself -- and now Circuit Courts are finding that, indeed, a case precisely like KPMG ought to be dismissed . And then that would take us out of the shareholder lawsuit and leave us with the contributory negligenc e malpractice case that Mr . Epstein is mounting . So that's issue 1 for us . THE COURT : flow about Lincoln's birthday? MR . WARIN : Lincoln's birthday . THE CURT : You should know that date . I

I

MR . WARIN : I should, your Honor . I was around when

V

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 50 of 89
Page 4 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
25

Lincoln was around . That's fine, your Honor . I think that would be great . The class notice issue -- like Fannie Mae, we are happy to get back to the Plaintiffs on that, and I expect in du e course we will be able to get that wrapped up, and that will be off the table . That really leaves us with the schedule and the -- you know, the issues relating to document production . Let m e address, though, first the slight of hand that my friend , Mr . Kilduff, did . Okay . So -- and it kind of weaves right into the Epstein hot-blooded thesis about, oh, my gosh, the sky i s falling . So let's talk about that . 'Where are 150,000 documents that Fannie Mae gave to OFHEO . Nobody has seen those . No one has seen those . The Plaintiffs -- Ms . Corwin, God bless her, has been asking for those documents since last summer . What you heard Mr . Kilduff say today is, we still haven't made a decision on that . You can imagine if those are 150,000 documents that Fannie Mae gave to OFHEO, they have to be in absolutely the sweet spot of relevancy . There can be no more relevan t documents than those 150,000 pages of -- 150,000 documents . We don't have them . The Plaintiffs don't have them . Th e individual Defendants don't have them . No one has them except for those guys .
THE COURT : All roads lead to OFHEO .

a~'.i~, !_.n~.x-. : :.t~ .~~,arM,+r, :.w ~:»~- .wu.+',w a« .v'~  w«w ~ .w

1

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 51 of 89
Page 5 0

I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not .

MR . WARIN : Thank you . THE COURT : Right, Mr . Truong ? MR . TRUONG : Of course, your Honor . THE COURT : All roads lead there . MR . WARIN : What I understand from Mr . Kilduff's statement is that they will decide which of those 150,000 , before the next status conference, fall within which tranche, whether they are going to assert the deliberative proces s privilege -- we had the impression a week ago -THE COURT : I thought he said 50/50 . He said I 50 percent, roughly . MR . WARIN : Whether they are going assert privilege or

THE COURT : Attorney-client and work product . MR . KILDUFF : Not deliberative process . MR . WARIN : Okay . Work product or attorney-client . Apparently they are going to make the decision before the next status conference . Is that the representation, Mr . Kilduff? MR . KIL D UFF : Certainly before, if not next week . MR . WARIN : So then we will an idea what that is . Then we will have to go up on the system and then we'll have to know if there is going to be a privilege log on that . THE COURT : So when you get here on Lincoln's birthday, you will know by then . MR . WARIN : About what the status of that is, right .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 52 of 89
Page 5 1

1 2 3 4
5

And we can then revisit in terms of the schedule . Let's talk for a moment about the KPMG documen t production . And Mr . Tulumello will discuss kind of the facts in five of this to mirror what Mr . Epstein said --THE COURT : Mr . Who from Gibson Bunn ?

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

MR . WARIN : You know, he is the tall, lanky guy, your Honor . He is the repository of the very specific knowledge - and has been staying up all night responding to these document requests . We made, by 12/15, the magic date that you have heard discussed here -- by 12/15/07 we produced about 1 .8 millio n pages of documents . That satisfied the Plaintiffs . And as Mr . Chesley said, they didn't have a dog in this hunt . Okay . So -- an d that was, Judge, all of the documents that KPMG produced to your favorite agency, OFHEO . All the documents we produced to th e SEC, all of the work papers of KPMG on the Fannie Mae audit . We produced that . That's what we did . All in good faith . We have gotten repeated requests, not from Mr . Kilduff, but from Mr . Epstein, for more and more and more, and we have tried to meet that, and we continued to meet that, and it's --candidly, it's endless . And we -- but we, in good faith, are addressing it, we are producing it . And the reason we don't want to give a date certain is because we don't want to do "gotcha" litigation ,

- .,

M :. : ..

.u

: . . ::

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 53 of 89
Page 52 Judge . What we don't want to have happen is, oh, you guys ar e 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of finished -- and then another Motion to Compel . And why do w e know this is the template -- and Mr . Tulumello will talk further about it -- because in this case -- you probably didn't even see it because it kind of came in right about the holiday season at the end of the year . Yet again a new law firm shows up fo r Fannie Mae . Not enough to have the thousand lawyers from Q'Melveny & Myers, not enough to have the 5003 lawyers fro m Jenner & Block . We need a three-person law firm from Newport Beach, California, to join the forces to crush KPMC . Cot to wonder, huh? The A-Team has arrived in December 1 07 to help out Fannie Mae . But, Judge -- because that is essentially somebody who plays a "gotcha" litigation, and Mr . Tulumello can give yo u chapter and verse on it, but it's Motion to Compel after Motion to Compel after Motion to Compel . And so what they're trying to do is the trick : Have you finished? Have you finished? Have you finished? Breathlessly . Say, yes, we have finished . . And then, bang, you will see another Motion to Compel in a New York minute, Judge . And that's what -- we are not going to play that game . We are going to produce the documents . We are producin g stuff --- training stuff like sexual harassment training to them . I don't know what that has do with the lOb-5 case, but you can have the stuff . We continue to produce the stuff . Videotapes,
7

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 54 of 89
Page S3 training materials, all sorts of stuff, Judge . Crazy stuff . 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 But, you know -- we get a letter a day but, you know, we are doing it . We are producing it . So that's why we are trying to deal with this . We are a little surprised to see the Motion to Compel because we have produced literally documents that week . But Mr . Epstein has hair trigger and really wanted to pull that thing -- and yo u a

could tell from the tenor of the letters it was just "gotcha ." Waiting to "gotcha ." We are not going to play "gotcha . " We have never played "gotcha ." I have practiced law for more than 30 years . I have never played "gotcha ." I have tried cases in this courtroom since 1976 . I have never played "gotcha" and we're not going to start today . And nobody a t Gibson Dunn is going to play "gotcha," your Honor . Nobody at Gibson Dunn is going to play "gotcha ." If they want to pla y "gotcha," we will fight fire with fire . But it's an insane way to go about this . THE COURT : Mr . Warin, if they are filing documen t requests for documents that are not relevant to this litigation i your judgment, I invite you, invite you to seek to quas h their requests for documents . MR . WARIN : Thank you, your Honor . We might have to take you up on that . THE COURT : I invite you to . MR . WARIN : Thank you . i

:-

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 55 of 89
Page 5 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT :

Because if any party in this days i s

wasting another party's time on requesting irrelevant documents, there is no place for that in this litigation . And I think , frankly, that is totally inconsistent with the spirit under which this litigation has been conducted for over four years . So if any side here -- not just you ; this is an ope n invitation . And I am mindful that you've got to be careful what you wish for ; I am mindful . But if you believe in good fait h that they are requesting documents that have no relevancy to the issues in this litigation, I invite you and anyone else who is a victim of that kind of conduct to seek a ruling from this Court to quash that kind of document request, and we will have hearing -MR . WARIN : Thank you, your Honor . THE COURT : - on an expedited basis . a

MR . WARIN : Thank you, your Honor . So on -- to this schedule, what's realistic? I do think it's important for the parties to caucus . I think it's interesting that, you know, we have satisfied the Plaintiffs on their document requests . You know, we met that . We met the 12/15 deadline . No KPMG deposition has been taken yet . It's not scheduled, candidly, now for months . We are happy to work with all the parties on a

reasonable schedule . You may recall, Judge, I was the lone wolf in the desert ages ago saying this schedule doesn't work .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 56 of 89
Page 5 5
1 THE COURT : Yes, you have been .

2 3 4 5 6

MR . WARIN : And it wasn't that we were trying to delay . My goodness sakes, the last thing in the world that our client wants to do is have this litigation continue . It wants it over . But I want for there not to be false premises and false promises about meeting deadlines because it wasn't realistic . Everybod y in the room knew it, you know . And -- you know, and that was

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

the inside joke, and it's not a joke . It's not fair to th e Court, it's not fair to everybody to have this false premise . So we ought to have a reasonable schedule . We ar e happy to meet with Mr . Chesley and his colleagues, Mr . Kilduff and his colleagues -- if he wants to include Mr . Epstein, that's fine as well -- to work on a reasonable schedule that make s prudent sense . I would say a couple more things, and the n Mr . Tulumello can really give you chapter and verse on some of the document issues . On the OFHEO individual Defendant litigation and the documents, the Court entered an order, as I read it that would suggest that the documents, when they are produced by OFHEO, would be only in the province of the individual Defendants . That is highly prejudicial to KPMG . And we are waiting for appropriate time to kind of raise that because the Court had just entered that order, you know, now a couple of weeks ago, I guess, or ten days ago or so .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 57 of 89
Page 56 I don't know where that fits in terms of the appeal an d 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 drinker . so forth, but I do want to put, you know, in a flag in the sand on that i ssue, that Rule 45, I thank, in our judgment, woul d

require those documents to be available to all the parties, including KPMG and the Plaintiffs . And I see Mr . Chesle y nodding yes, So I will take that as concurrence that we agree on that proposition, that Rule 45 -- look, we are all bound by a

very onerous Protective Order, Fudge, that we all agreed to, and the OFEO documents would sweep right into that Protectiv e Order . So there is no suggestion it would be in a category separate . We have, literally, obligations to this Court and t o the parties to comply with that Protective Order . 5o I just say that -- and I don't know if Mr . Kilduff has a position on that or not, but it sounds like both KPMG and the Plaintiffs fee l that those documents ought to be available to everyone in the litigation . It would surprise me that Fannie Mae would not want to have access to those documents . They may be so chilled because this is their regulator that they can't say they want to hav e OFHEO documents, but my guess is that after a scotch on a Friday night, Mr . Kilduff would like nothing better than to have those documents . MR . KILDUFF : It may not surprise you that I am a beer

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 58 of 89
Page 57 MR . WARIN : We should introduce him to finer things , 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 your Honor . So that's the state of play on that . I would sa y that -- and Mr . Tulumello will address this a little further , but we did get a request on January 15th from the Jenner & Block law firm for 55 additional document requests pursuant to th e CMO . So I am not saying there is anything that was unkosher about that . I think that was perfectly appropriate that the y provided for a hard date in the sand to produce it . Mr . Epstein sent out additional document requests, 55 --- those aren't du e until, though --- I believe it's April 15th, unless I a m mistaken . We simultaneously did the same thing . We submitted stuff as well . So all that -- it was in an orderly process . What has changed is kind of the Motion to Compel -- and Mr . Tulumel,lo can give you more details about the documents produced . And what we would lake to do is revisit that Motion to Compel at the nex t status conference where we will really have a sense of the scope and breadth of the documents . So, Mr . Tulumello, Judge, will address the rest of the issues, please . THE COURT : All right . You have got the short stick . MR . TULUMELLO : Exactly . Good afternoon, your Honor . I wanted to talk about the KPMG document production issues, but then also more generally some of the problems that we have

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 59 of 89
Page 58 encountered in terms of how the schedule has unfolded . I think , 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 as you know, going back in time in the securities case, Fannie Mae was sued shortly after the events of '04 . KPMG was brought in much later . And when -- by the time the PSLRA stay wa s lifted, it had been almost a year after Fannie Mae was producing documents . Then the malpractice cross-claims that Fannie Mae ha s sued as part of their defense in this case -- those were brought last December . And then they waited, despite the urgency that you are hearing about today, not one month, not two months, not three months or four months -- we served our requests to the m relating to these claims in May, I believe . And a case that was I filed in December, they served the requests in July . So by December 15th, we had produced in the litigation, as Mr . Warin said, 1 .87 million pages of documents . And just, again, to be clear on what that is, the SEC investigated ou r audit team . We ran hundreds of search terms through all of the people the SEC asked to see documents from . We gave them every SEC transcript, every OFHEO transcript, every exhibit . Pau l Weiss came in . They had interactions with KPMG . We produced all of that . The Plaintiffs asked for additional documents . We produced all of that . Okay . And that volume is 1 .87 million . Where are we today, your Donor? Today we are at 5 .5 million pages of documents responding to this supposedly core i

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 60 of 89
Page 59 set of material that Fannie Mae thinks is so essential to th e 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 malpractice cross-claims that they have gotten . And I think, your Honor, what you said about -- your invitation to come t o the Court to propose reasonable limits is one that we are going to strongly consider . And I just wanted to give you a flavor -- THE COURT : Well, you can consider this, too, and s o can Mr . Epstein : This Court has no intention to allow the tail to wag the dog . Do you follow that, Mr . Epstein? As important as it is to your client to go after KPMG for malpractice, it's not first in time or first in right to the securities case . MR . CESLEY : Thank you .

THE COURT : So the Court will do its best t o accommodate your schedule for your litigation, but not at the expense of the securities case . Read me loud and clear . Read me loud and clear . There are limited judicial resources here . There are limited judicial legal resources here . The tail will not wag the dog . And I certainly hope Mr . Warin, when he has had that scotch tonight, and on a little reflection, might realize that perhaps there weren't too many requests, if any, that were not relevant . But if there were, he will find a cold reception in
11

this courtroom to it . I warn you . MR . TULUMELLO : So, your Honor -W and I just wanted to give you a flavor of what we are rounding out, and just to take a couple of examples -- and this is just by way of illustration

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 61 of 89
Page 6 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

to show what is happening in terms of the documents . KPMG has audit manuals . The SEC, as part of it s investigation, asked us to produce audit manuals, and we gav e them a sample from the time period that they looked at, and they were satisfied with that . We have produced those . They wer e made available to the Plaintiffs . Those were produced before the December 15th, 2007 , deadline, and then the request we get in the malpractice claim is -- there is little back and forth . We say we have produced
g

them ; they say, no, you haven't . They want not just --- they want not just every manual for each year -- every version of every manual and every amendment to any manual, an y audit-related manual, that we had in place from 2000 to 2004 . And I thank part of the reason that we are now delayed is that we have said, okay, well, we don't want to get into the business of Motions and litigating documents and so forth, so we said, we will just produce it . 5o we produced it . THE COURT : So you thought you had it bad, Truong . MR . TULUMELLO : All right . Just one other example , your Honor, and then I just want to address one other topic, but professional practice letters --- these are pieces of guidanc e

that go out to KPMG audit professionals . The SEC combed through these and asked us for the professional practice letters tha t were on the topics that they were interested in and the work we did for Fannie Mae . J

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 62 of 89
Page 61 We produced dozens of those . It may be over a hundred . 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I provided an index to the Jenner & Block malpractice unit to say, you know, here is what we gave . The request that came back is, we want every one - every single one that was in effect between 2000 and 2004 , whether it relates to audit or not . We have got PPLs on ta x issues, everything else . And we said, fine, so we have produced it . Training material . Training material . When KPMG trains its first year associate auditors, its second yea r associate auditors and partners --- they have asked for training material . We said, okay, we will give you that . We have had a team up in Montvale, New Jersey, which is where our archive s are, trolling through hundreds of videos, hundreds of videos, which are all going out to all the parties, and boxes and boxes of training material for auditors . That stuff is -- it's hard to produce . It's not kept in the best of shape in archives, but we said we would produce it . Just when I get on the verge of saying that KPMG i s finished producing, based on the requests served to date, I get another letter that says, well, what about X, or what about Y, or have you searched the, you know, e-mail files and which terms did you run for this individual or that individual and so forth? And, to date, we have simply said, we will go ahead and do it . Our view is we have got nothing to hide in terms of the

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 63 of 89
Page 62

1 2 3 4 5 .6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

documents at all . I think you have heard our pitch on this case . It's a contributory negligence case . These ar e cross-claims to the main event . We just want to keep moving forward . So, you know, we are continuing to work hard . I think the notion or the suggestion that they won't know whic h documents to ask for at this point in time -- after the SEC has been through it, the OFHEO, the lead Plaintiffs, after we'v e produced these millions of pages of documents, there really isn't another -- there may be, with enough imagination, but there really isn't another document that could be requested . So that's issue 1 kind of in terms of status and process . And the other point that I want to emphasize with the Court is I just want to do some foreshadowing because I a m concerned about the change in tone and style that we have seen, at least on these cross-claims, in the last month . You know, I have been in this case -- we have been in this case a long time . We have been on the MDL schedulin g committee a long time . There have been some memorabl e disagreements and conference calls, and they have been strong ones . But we -- you know, we have always been able to work things out without filing Motions that are -- tear up in your hands they have got so much hyperbole and rhetoric . And I am just foreshadowing now . I have given you the

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 64 of 89
Page 63

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

sense of the scale that has been produced and what has (sic] been produced, what we've already done to go beyond, and I am just foreshadowing right now that there will be Motion after Motion after Motion because every indication is that there is going to be a decision here to litigate document productio n issues as opposed to merits-related issues . casting -THE COURT : This is on the malpractice case . MR . TULUMELLO : This is what I am saying, on th e malpractice case . And, again, your Honor, I'm not -- I don't But the And, you know,

want to impute motives . I am not casting aspersions .

new lawyers that entered for Fannie Mae in terms of thei r malpractice unit in December are lawyers who are fairl y well-known to KPMG . They have got a number of active cases against the firm . If you were to do something like do Internet searches for KPMG litigation .com, KPMG lawsuit .com, KPMG p ractice .co m [sic], you would go to Fannie Mae's Lawyers . And when you do the archeology and you talk to the people at the client, how does this work? This is how it works . Motions on Thursday, demanding responses by Monday, you pay the costs . Motion for Sanctions : You haven't produced this, you haven't produced that . Your Honor, I am happy to be very transparent with what we have done in terms of our process, but I want to foreshadow

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 65 of 89
Page 64 what I think is coming . I want to express my concern 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 about it .

And we will seriously consider taking you up on your Honor's invitation to file Motions where we feel that it ha s overreached . in my experience in a case like this, we ought to be able to get together and work it out . I mean, the KPM G materials that are still in the pipeline are materials that will get up and get out as promptly as we can . If there ar e scheduling accommodations that they need, we would be happy to talk to them about it . But what I don't want to see us go down the path of doing, and what I think where we are headed, is what I said, Motion after Motion after Motion . And you can't -- as your Honor knows, you can't -- you can't unilaterally disarm . You know, we can't come here -- I can't come here with all of our beleaguered associates and have people: start saying, this wasn't done in good faith, that wasn't done in good faith, where we don't lay out the issues that w e had with Fannie Mae's document production, but which we are trying to resolve, you know, outside of public view, without Court involvement and so forth . And, your Honor, if it gets into that, we are happy to do that . I think we have got --- we have had some seriou s concerns with how the schedule is set up . Witnesses -- Fannie Mae witnesses get scheduled, okay, based on the documents that have already been produced .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 66 of 89
Page 6 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Then what has happened -- just to give you a n example -- we had depositions of Fannie Mae witnesses in th e fall, October, November depositions . We knew -- we were told by Fannie Mae that restatement-related documents were still being produced, restatement-related . Fine . We understood that and we believed that -- we believed that restatement-related documents would not include e-mails sent or received by the individual s who were deposed . Well, in fact, they did include e-mails sent or received by people who were deposed . We did not think that restatement-related would mean e-mails sent or received for the period 2000 to 2004, or -- and which were produced out of that very witness' own file, but that has been the case . So we have actually sat for depositions with Fannie Mae witnesses where documents have come in after the fact that we didn't have the opportunity to review when we got ready t o depose the witness . So the concern I have is that we have got, by parties' all agreement, a January 15th date was the last date to serve document requests . Those documents -- all documents ar e I

21, supposed to be in by April 15th . The concern that I have, and 22 23 24 25 where I think there has been some prejudice, is deps have gone forward before all documents relevant to an individual have been produced . And though there is more detail that we can into on

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 67 of 89
Page 6 6

1 2 3 4 5 6
7

that, that's the type of issue that we are trying to resolve informally . It's not the type of thing that I think needs t o blow up in a conflagration for the Court, but if we go down this path, I just want you to understand that, you know, if yo u become the focal point for all of this, there just -- you can't just have, you know, one person on the see-saw . It has to b e
balanced out .

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

And, finally, just to say, you know, we've --- I regret that we are not perfect with the document production . I do regret that . But the notion that people will bandy words i n briefs or Motions with accusations about motives and intentions when, you know, Fannie Mae produced more than 1-1/2 millio n pages after the deadline --- where we had a deposition of a key internal audit witness set for next week, they produced 100,000 pages from that custodian's files on January 18th -- I mean , there's enough dust to be kicked up here, and we just want a process that is reasonable . We will be very transparent with
3

the Court about our production efforts . And I think with that, your Honor, I will leave it there . Thank you . MR . EPSTEIN : Your Honor, I do want to respond . THE COURT : You are only going to get two minutes, MR . EPSTEIN : Okay . Many misrepresentations, and I can't cover them all now . I want to cover a few general points . We would be happy any time to talk about the requests

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 68 of 89
Page 67

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

we actually served rather than fictitious requests that w e didn't serve . If they want to make up something about sexua l harassment, they can stand up here and say that . We didn't ask for those documents . We asked for manuals on how you perfor m your audits . So they wrote back to us and said, by golly, you have asked us for manuals about sexual harassment . And so we wrote them back and said, no, we can confirm that we are seekin g training manuals for subjects only that are related to th e litigation and the audit procedures and the accounting issues . The example of sexual harassment training noted in you r letter --- of course we don't want that . If they want to stand up here and do that, more power to them, but it's a misrepresentation . The problem here is that they began their production after the deadline . Under KPMG's view, there can't be an y deadlines because it's just a game of "gotcha," but under that view, they are never held accountable . We are trying to narrow
a

the issues . We can't narrow the issues if every time we do that, they say, I know it's been eight months since you served a request, but we are still producing, and so maybe we wil l produce that later . So nothing is ripe, and they are never accountable . And I want to very briefly mention, in terms of your

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 69 of 89
Page 6 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Honor's question about the schedule, we have been absolutely steadfast in cooperating with the consolidated schedule, and everything that we have done in case has been on th e consolidated schedule, including deadlines, depositions . THE COURT : Eight . MR . EPSTEIN : At no time have we asked for a different schedule -THE COURT : You've got to appreciate the consolidated schedule iS essentially an expedited schedule . So you can' t help but be benefiting from that, especially since you got in late in the game . Now, if this can't be worked out, we will have a separate track . MR . EPSTEIN : And all I can say, your Honor -THE COURT : We will have a separate track, and it will I not be the primary track . So you and your client can think that through, just like KPMG can think it through, but the tail won't wag the dog . Bear that in mind . It will not wag the dog . And if we are going to have to do it the hard way, we will do it the hard way . If we are heading for a cliff, we won't get to the cliff . We may be heading for it, but we won't get to it . MR . EPSTEIN : We completely -- we read you loud and clear, your Honor, and that's why there have been thes e committees with the joint scheduling -- we don't even sit on that committee . We defer to the other parties because we are

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 70 of 89
Page 6 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

cooperating with the schedule as a whole . THE COURT : Well, you have a colleague here . MR . EPSTEIN : That's exactly right . THE COURT : Mr . Kilduff . MR . EPSTEIN : Who is in the securities case . THE COURT : He is as intimately familiar with th e securities case as can possibly be . He understands . So -- I just don't want there to be any confusion in your mind or your client's mind . And since we have the general counsel, offic e representative -- I know there is no confusion in her mind . MR . EPSTEIN : We do understand that, your Donor, and that's why, on the consolidated agreed schedule for all o f cases, it's important that the deadlines be adhered to, even give or take a month, but not give or take six months, ten months on a document production . THE COURT : All right . MR . EPSTEIN : And it's the tail wagging the dog that is the heart of the problem . You didn't hear them dispute tha t 90 percent of their production came in more than six weeks after the deadline . THE COURT : All right . I am not going to resolve this today . MR . EPSTEIN : Thank you, your Honor . THE COURT : Hold on . No, no, no, no . We have individual Defendants here . Have a seat .

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 71 of 89
Page 7 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that -thank . unique .

MR . CHESLEY : Sorry, your Honor . THE COURT : It's all right . Mr . Delinsky been champing at the bit over there . MR . DELINSKY : What's a hearing if we don't get to Mr . Truong . Your Honor, I don't know if you want to hear these issues now or whether it would be more prudent -- and if th e Court had time early next week -- but your Honor is aware of the administrative stay issued by the Court of Appeals . THE COURT : That's a unique power they have . It's

MR . DELINSKY : Yes . THE COURT : We won't find it in the rules, I don't

MR . DELINSKY : I wish I could administratively stay

THE COURT : Take a look at that . There is no rule that says that . They did it . Fine . MR . DELINSKY : What I just want to raise -- again, if your Horror want to discuss this at a different point in time, that may :Hake more sense -THE COURT : Well, take a minute . MR . DELINSKY : All right . There's many issues that - with OFHEO's production that are not subject to the appeal that we need to discuss, and it seems to me they have an extra week

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 72 of 89
Page 7 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

now in which they can work on some issues . THE COURT : Now, they still have to keep producin g those privilege logs . That stay has nothing to do with thos e privilege logs, at least as far as I can see . Now, maybe -- you know, there's a lot of legal talent in the room, includin g Truong over there -- he is not even nodding his head . He i s just listening . But I don't think even Mr . Truong would get up here and say that stay stays their obligation to produce those privilege logs by the end of February . They are going to be held to that until such time as the Court of Appeals specifically says they are not going to be held to it . So they better -- they better get those privilege logs done . MR . DELINSKY : We are in agreement, your Honor, bu t there is one issue of critical importance through -- in all our discussions and all our hearings, Fannie Mae, through it s counsel as well as through its witnesses, has been very candid in stating that the documents they have withheld on privilege represent a rough cut, and they are going through deprivileging process . THE COURT : Wait a minute . Who said this, Fannie Mae or OFHEO ? MR . DELINSKY : Oh, I'm sorry . THE COURT : You said Fannie Mae, I think . MR . DELINSKY : I meant OFHEO . I apologize . OFHEO, in a i

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 73 of 89
Page 72 all our chambers conferences and all our hearings, they said , 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 look, we are going back through these 180,000 electroni c documents we have withheld, and a large portion of them we are determining are not, in fact, privileged, upon second review . THE COURT : Well, those have to be turned over . MR . DELINSKY : Your Honor, I think it would be helpful to have a deadline for that, and I would propose next Friday , because to date they have turned over deprivileged documents for four of 3 1 custodians . And for those four custodians, for the

record, the number of deprivileged documents they turned ove r number in the thousands . So I am concerned we will never see those documents in a timely fashion for the retraining 27 custodians unless there is a deadline in place . THE COURT : Now, hold on a second . They have to produce the privilege logs by the 29th, as I recall it . MR . DELINSKY : That's correct . THE COURT : Then I set a status hearing a few day s later to see what's happened . Well, at a minimum, they have to have produced whatever is not going to be in the privilege log prior to or on that date . That's only two weeks later . Plus, they are doing it on a rolling production basis, I believe . Mr . Truong will say they continue to produc e privilege logs on a rolling production basis, which means over the next few weeks you are going to be getting installments,

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 74 of 89
I
Page 7 3

I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

right ? MR . DELINSKY : If Mr . Truong comes up and says that, am happy, your Honor . THE COURT : We will see . MR . DELINSKY : That's why I stand up here . THE COURT : Okay . All right . Mr . Regan, do you have anything ? MR . REGAN : No, your Honor .

THE COURT : Mr . Downey ? MR . DOWNEY : No, your Honor . Nothing . MR . TRUONG : The long March . THE COURT : No Mr . Romain today, huh? Oh, there he is . There he is . MR . TRUONG : It must be fatherhood that slowed him down . THE COURT : You are right behind that thing there, Mr . Romain . MR . TRUONG : Good afternoon, your Honor . John Truong for OFHEO . I have two quick points --THE COURT : You need no introduction . MR . TRUONG : I have two quack points, your Honor, and then I would like to address the issues that Mr . Delinsk y raised .
3

Point number 1, after hearing a parade of lawyers getting up here and talking about the document production

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 75 of 89
Page 7 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

issues, what have you, and the disputes -THE COURT : I know where this is going . MR . TRUONG : We are the golden child . We are th e star child in this Court, your Honor . And just to give you an example, to date we have spent more than $6 million to comply with the Court's various orders to produce, review and log the documents . So after I am hearing all these disputes amongst th e parties, mind you, we are the star child . We are the star pupil in this Court . THE COURT : You don't want to know what OFHEO -- I mean, what Fannie Mae and KPMG have spent . You don't really want to know that . MR . TRUONG : They are parties to this litigation, and we are not . THE COURT : I know . I understand that . MR . TRUONG : The second point I want to make - THE COURT : But you are the regulator . MR . TRUONG : Yes, your Honor . The second point I want to make is that since it's open season on KPMG today, I figured I would talk about KPMG a little bit also . Yesterday, we received a subpoena from KPMG askin g for documents, and I actually spoke to one of KPMG's counsel and I asked him, what on earth are you asking for that have not been produced, requested or fought over in the past year?

I

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 76 of 89
Page 75 And to and behold, I got a document request . 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that . MR . TRUONG : Thank you, your Honor . And so it is -- we are not here to produce documents whenever people feel like that And th e

document request number 7 says, All documents OFHEO produced in this litigation . That's one of the document requests that KPMG has subpoenaed my client . And that begs the question --- because if they are party to this litigation and they have access to the shared database, why are they asking for the sane documents that we produce d months and years ago ? THE COURT : There must be some confusion here, Mr . Truong . MR . TRUONG : It says, All documents produced by OFHEO in the litigation . THE COURT : You need to get with Tulumello tonight . Have a scotch and talk to him . Warin will be -- he will be on martinis by then . MR . TRUONG : Single malt, if that's possible . THE COURT : Absolutely . Absolutely . MR . WARIN : Anything for you, Mr . Truong . MR . TRUONG : And so the one thing I want to impress on this Court, and perhaps the parties in this room also, is that OFHEO is not a Kinko's . We are not a document copying service . THE COURT : Believe aye, I will take judicial notice of

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 77 of 89
Page 76 they need the documents . Go and look for the documents in some 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 other sources before coming -THE COURT : I think you are going to work this out with Tulumello . I think some young whipper-snapper made a mistake , probably, but we will let them work it out with them . MR . TRUONG : With regard -THE COURT : Now, how about the things that are relevant right now ? MR . TRUONG : Yes, your Honor . THE COURT : Rolling production, privilege logs an d documents that don't qualify to stay on the privilege logs that you, after closer inspection,
have

decided these don't qualify

so, therefore, throw them back in the sea . MR . TRUONG : The Court is correct . We did produc e supplemental deprivileged documents, if you will and -- for four custodians that we have produced their privilege logs . So the depriving, if that's such a word, of the documents coincide with the pace that we could produce the privilege logs . And so right now we are working on them, and as I mentioned to the Court I believe last week, because of th e Court's January 22nd order, we did have to divert resources to meet that deadline, so there may be a ripple effect down th e line . But we have an objective, and we are working towards that objective .
a

So that's all. I have to say in response to

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 78 of 89
Page 7 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mr . Delinsky's comment . Thank you, your Honor . THE COURT : Thank you, Mr . Truong . All right . Now, Mr . Kilduff -- oh, Mr . Chesley . You will get the last word . MR . CHESLEY : Your Honor, I am sitting here, and I now see --- we have been able to peel away the onion, and let's see if I can't quietly try and distill what I am hearing . One thing, your Honor, you read my mind . I wrote down -- maybe this is a Rule 42 -- sever it off . The othe r thing that I recall is that the party creating the delay is not entitled to request deposition delays . And let me see if I can distill this down, your Honor . Number one, I have a definitive issue with Fanni e Mae -- definitive issue with Fannie Mae which is under control, contained, a rubber band is around it -- a Special Master can do that, and we have 53 depositions set . They are Fannie Ma e people, Fannie Mae people that were involved, and I am not calling anybody back . We want to move those depositions forward . They don't impact this document fight . We did receive 2 million documents from KPMG, and we are satisfied . If we get more, fine . We believe that two issues that were not discussed by Mr . Warin -- of course, I was in the washroom for a couple of minutes when he was in minor righteous indignation abou t "gotcha" -- is just tell us, how many more documents do you have? Yes or no . And, if so, are you going to produce them?

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 79 of 89
Page 78 I am talking about the logs, the privilege logs or wh o 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor . THE COURT : -- not going anywhere . I MR . CHESLEY : Very simple . We will meet wit h everybody, but we believe that the parties that are delayin g this --- and I don't know if it's Fannie Mae right or Fannie Mae wrong, KPMG right/wrong, OFHEO right/wrong -- the Plaintiff s have produced their documents . We are prepared to go forward and move this litigation . And we have not created any delay . And it looks to me like it's getting to be "gotcha" on everybody's side . So t o distill it down, while we are owed something by Fannie Mae, yes or no, that's in the hands of a Special Master . We are prepared to go forward on that . I think that there should be, hopefully, som e requirement by KPMG to just say how many more documents there did when -- what . The other thing is resoundingly quiet . They have asked for 1 65 depositions with no names, no individuals, no reason s for them . And I have but two suggestions - THE COURT : In the securities case ? MR . CHESLEY : It's part of the consolidated -- I have no idea what they are asking for . They won't tell us . THE COURT : Well, that's -MR . CHESLEY : I have a very simple suggestion, your

t7

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 80 of 89
Page 79 are coming so somebody can get an idea . One person said tha t 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 there's only 10 percent produced . They claim they sen t 90 percent . I don't really care . And also withdraw this request for 165 depositions , when we really don't know who they are or what they are, so that we can move forward with the 53 and then find out literally from them in a meeting among ourselves how many depositions the y really want so that we can queue them up rather than having this, well, we don't know yet kind of thing . And also I believe that the 1 65 suggested depositions

falls within the same whipper - snapper who wrote, please give me all of your documents that files to date, and maybe they ca n clarify it for me . All we say is we stand ready, willing and able to help the process . We will meet with anybody at any time . But before we start rescheduling everything, we would like to go forward on these 53 depositions, and not -- with the understanding, I know, that we are going to have to extend the time period -- maybe a closed Discovery -- of course you've still got expert witnesses and so forth and so on . I still feel strongly that what ha s been the magic of this case is this train is moving, and I don't

want to see it derailed or sidetracked now, particularly --- and I've got to thank the Court for your words, that the securities case is out there, and we are the ones that are harmed, and we are prepared to move forward rapidly . And I don't want to be

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 81 of 89
Page 80 part of a situation where it's being delayed because they hav e 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 got some in-fighting going . Thank you, your Honor . THE COURT : Thank you, Mr . Chesley . Mr . Kilduff . MR . KILDUFF : Thank you, your Honor . Mr . Chesley and I wanted to address the same exact point, except we are on exac t opposite sides of it, I think . And that goes back to you r Honor's Friday hearing last week, the slippage in the schedule and us to start thinking about what it means . The problem we have got is Mr . Chesley wants to move forward on 53 depositions . The problem I have got is that I don't want to produce those witnesses twice . We need certain KPMG documents because the witnesses from Fannie Mae will need to see those documents as well to see what the auditors think they were seeing with respect to that person's files or tha t person's role in the audit, what that person was or wasn't doing with respect to accounting policies . I mean, this, at base, is an accounting case . So while we need those KPMG documents before we put up witnesses, we also need those documents before we go and take KPMG depositions . But for purposes of the 5 3 --- and it wasn't addressed by counsel for KPMG, but we need some clarity . And I thin k between now and the next status conference, we need to know

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 82 of 89
Page 81 people's positions on these depositions, whether -- if they ar e 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 going forward, whether they are committed to one shot . You get this witness now, you want him now, you schedule him and yo u take him, but you are not going to subject Fannie Mae to th e cost and expense of multiple depositions . And I haven't heard a position on that from counsel for KPMG . And I think Mr . Tulumello kind of highlighted a n example of the problems we have gotten into . Some witnesses had a certain role with respect to the accounting issues back i n 2001 through 2004 . Those documents were produced to the Plaintiffs . Along comes the restatement, which is what the KPMG folks are more interested in . New documents are produced in response to different requests, and so those documents are coming at a later point in time . So what do you have? You have a witness who has already testified with more documents this time on th e restatement . So if a witness is going to sit once and has a

restatement role and then has a historic role on the accounting that the company got wrong, then you need all, the documents . And so, unfortunately, as mach I would like to keep this train moving, and as you know, your Honor, I have been an advocate for an aggressive schedule -THE COURT : You have . MR . KILDUFF : -- we are now in a dilemma, and this

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 83 of 89
Page 8 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

conundrum is that we cannot prepare these witnesses or tak e these depositions, depending on which side you are on, without the completion of the document production . So we still believe that we need the document s produced, and we would like some clarity, whether it's, yo u know, another day -- and maybe the next status conference on the parties' positions -- with respect to whether you take a witness more than once . We've got to figure out a way to do it . We've got a lot of smart lawyers in this courtroom . We can probably figure that out . But I think that is essential because, right now , between now and the next status conference, we are going to have some tension here . We are going to have the Plaintiffs wanting to move forward ; we are going to have problems in that we don't have certain documents . We are going to say, we are only going to produce these witnesses once . I am not sure what KPMG' s position will be . And we don't need more Motions before your Honor . So I thank we need to take some time, look at this over the next 30 days, figure out a solution -- but it would help me, in my approaching this, to get informed from KPMG as to how they view this -- what I call a conundrum, and what their curren t position is with respect to witnesses that are on the schedule . I mean, we have depositions coming next week, the week after and the week after that . Those are the depositions that Mr . Chesley I

11

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 84 of 89
Page 8 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14
15

wants to keep on track . I am all for keeping them on track . I am also all for not for putting them another track and having them deposed again in late summer just because documents are coming in late . MR . CHESLEY : Your Honor, I commit that we, on behalf of the Plaintiffs securities class, are prepared to take these 53 depositions and not request any of these people to come back . Also, one last point I forgot, your Honor, I was in the washroom, and I asked Mr . Cummins -- and he wasn't quite clear . Apparently, KPMG wants an oral argument on the Motion for Reconsideration, and you said something about Lincoln' s birthday . That's okay with me . If -- is that the 12th? I f that's when they want to do it . Can we get our papers in before then ?
MR . CUMMINS : Yes .

16 17 18 19 20 21 22 23 24 25 if

MR . CHESLEY : We will get our papers in . If that's - THE COURT : 3 :00 .

MR . CHESLEY : Your Honor, we are prepared to argue that

THE COURT : 3 :00 . MR . CHESLEY : Pardon? THE COURT : 3 :00 . MR . CHESLEY : Good . All right . THE COURT : But I want to meet with the lawyers for KPMG and Fannie Mae in the malpractice case at 2 :00, just the j

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 85 of 89
Page 84 I 1

1 2 3 4 5 6 7 8
9

lawyers,

chamber conference .

And have your gang fro m too ,

California -- someone representing that group there, whoever they may be .

Now, our next get-together will be on March 5th, tw o days after I have had a chance to get updated by Mr . Truong o n what's going on with OFHEO's production . then, And between now an d

I will be focusing on trying to get to the bottom of th e

document production issue - MR . CHESLEY : Thank you .

10 11 12 13 14 15 16 17 18 19 20
21

THE COURT :

-- with the parties .

As it impacts on th e Kilduff's poin t

upcoming depositions in the case -- I think Mr . is a good point :

Having people coming back multiple times i s So it' s

potentially very problematic or expensive, blah, blab . a good point . that . It's a fair point .

You are willing to waiv e That's, I think ,

You are willing to take them only once .

a very f a i r o f f er . But, of course, those depositions -- there may be othe r

people who need to depose them other than just the Plaintiffs . So there's a lot of interest at stake here, and I want to -- I

want to be able to reflect on it and hear a little more from th e
parties as it relates to that .

22 23 24 25

But we have a Court of Appeals issue that's going t o have a definite impact on the schedule, will go . and who knows where tha t

By hopefully March 5th we will have a briefin g

schedule from the Court of Appeals as to the briefing and the

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 86 of 89
Page 85 oral argument . But we may not, and that could put us into th e 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 fall or next spring before the oral arguments take place . So -- and we will need the benefit of counsel' s thinking on what the practical ramifications are of getting t o the bottom of the OFHEO documents, at the earliest, come fall or spring of next year, and what the collateral consequences are on the depositions of these other parties . 1 mean, obviously, one would hope that the Court of

Appeals would also be weighing all these interests, too, when they issue their decision . I don't know . MR . CHESLEY : Your Honor, we need a time know March 5 . Is that 2 :00 ? THE COURT : Oh, I thought I gave you one, but let me get that . I wrote it down on my calendar . March 5, 3 :00 . MR . CHESLEY : And one last thing, your Honor, in your comments you just made --°- and I appreciate it, but I see -- and we would like to go -- we have some depositions next week . We would like to go forward with those, if the Defendants ar e willing . But here is -THE COURT : Well, I haven't heard them say they won't do depositions next week, so I would say you are going forward . MR . CHESLEY : Good . Your Honor, I might mention, just in passing, if I represented a Defendant who didn't like being here in this trial and one of their defenses is that OFHEO is tied up in the District -- Court of Appeals for the District of

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 87 of 89
Page 8 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
22 23 24

Columbia, I would see how that could be used effectively to prevent us from getting to the courthouse steps when we are prepared to go to the courthouse steps with what we have . I am not going to quote Former Secretary of Defens e Rumsfeld that you've got to go to war with what you've got . We are prepared to go to war with what we've got because I can see this OFHEO thing as -- in the Court of Appeals preventing th e securities case . And I just want to say that we don't want that to happen . And we will take the risk of not having OFHEO . I just mention it in passing . MR . WARIN : Your Honor, Joseph Warin for KPMG . Then on the Motion to Compel that was filed by Fannie Mae, what I would propose is that we address that in the chambers conference o n the 12th, and then if the Court thinks it's necessary for us to file an opposition, I would be happy to pick that up . But I think that -- it sounds like the Court would like to have a dialogue on Discovery issues and the like on the 12th at 2 :00 . THE COURT : That's at 2 :00 . MR . WARIN : Right . That's at 2 :00 . Right, your Honor . THE COURT : 3 :00 is -MR . WARIN : Tellabs . THE COURT : -- Tellabs . MR . WARIN : Right . Thank you, your Honor . So -absolutely . Thank you, your Honor .

25

is

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 88 of 89
Page 87 THE COURT : All right . We stand in recess .

2 3 4
5 6 7 8

(Whereupon, at 5 :07 p .m ., the proceedings were concluded . )

9
10 11 12 13 14 15 16 17 18

19
20 2 1 22

23
2 4 25

Case 1:04-cv-01639-RJL Document 782-7 Filed 09/16/09 Page 89 of 89
Page 8 8 CERTIFICATE OF REPORTE R

2

3 4 5 6
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 j

1, Patty A . Gels, certify that the foregoing is a correct transcript from the record of proceedings in th e above-entitled natter .

=

Sign up to vote on this title
UsefulNot useful