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A potential investigation of foreclosure abuse by OneWest Bank, which was owned at the time by Treasury Secretary Steven Mnuchin, was abandoned after OneWest donated to the political campaigns of then-California Attorney General Jerry Brown (2006-2010) and then-incoming California Attorney General Kamala Harris (2011-2016).
The donations occurred in 2010, shortly after an attempt to subpoena the bank and while the bank was in negotiations with the attorney general’s office, but before any formal investigation was opened.
According to a memorandum from the California attorney general’s office, no court action was filed “despite strong recommendations.”
Donations by a business being investigated might be perceived as a conflict of interest, but campaign finance reform advocates Kathay Feng from Common Cause and Brendan Fischer from the Campaign Legal Center indicated that the situation is just a subset of the larger concerns about money in politics.
Homeowner advocacy groups regularly accused Mnuchin of running OneWest as a “foreclosure machine” for its actions during the housing crisis, an allegation Mnuchin denied in his January 2017 Treasury secretary confirmation hearings in Washington.
Even though OneWest was targeted by homeowner advocacy groups, the bank escaped some of the penalties that other banks faced during the period, a Bloomberg BNA analysis of records has shown.
Attorney General Brown in 2009 publicly asked mortgage servicers, including OneWest, to try and stop the wave of foreclosures enveloping California. A subpoena was issued by the California attorney general’s office to OneWest’s subsidiary, Financial Freedom Acquisition LLC, later that year, according to a memo recently leaked to The Intercept, an online publication. The memo is available on the Intercept website.
In 2010, OneWest contributed close to the state maximum amount for individuals to the 2010 Democratic gubernatorial campaign for Brown ($25,000), the attorney general campaign for Harris ($6,500), also a Democrat, and to the California Democratic Party ($32,400), according to numbers compiled from the National Institute on Money in State Politics. Otherwise, OneWest made no other political contributions.
The 2010 donations to Brown’s campaign were made as he was in talks with OneWest over the foreclosure crisis, according to a press release from the attorney general’s office at the time.
The California Democratic Party contributed more than $280,000 to Harris’s campaign, Robin Swanson, a representative from the campaign, told Bloomberg BNA. They party doesn’t accept earmarks on donations to specific candidates, she added.
In the 2010 elections, both the governor’s and attorney general’s race reached the high-water mark for spending, with more than $238 million and $31 million spent on all candidates respectively, the most for any governor’s and attorney general’s race to date.
The leaked memorandum, dated January 2013, indicates that a formal investigation was eventually opened under Harris after the Treasury’s Office of Thrift Supervision found issues with OneWest’s foreclosure processes in 2011.
The memorandum also states that no court action was filed “despite strong recommendations,” and that OneWest regularly obstructed the process. The memo detailed accusations of a slew of abusive foreclosure practices such as rushing proceedings to backdating instruments.
The California attorney general’s office declined to comment. Representatives for Harris, now a U.S. senator, Mnuchin, and CIT Group, which bought OneWest in August 2015, did not respond to requests for comment.
A representative for Brown told Bloomberg BNA that the governor takes donations from a wide range of sources.
Compared with other banks sanctioned during the foreclosure crisis, OneWest—which Mnuchin created out of the ashes of California bank Indymac, the largest single bank failure of the mortgage crisis—avoided major penalties or enforcement actions by courts or state and federal agencies for its actions.
Even as similar mortgage servicers entered into settlements of class actions and Treasury Department investigations into a wide range of abuses like robo-signing, dual-tracking, and unnecessary force-placed insurance, OneWest walked away relatively unscathed.
Unlike other banks, it avoided class-action prosecution over force-placed insurance, and the penalties it received from the Treasury’s Independent Foreclosure Review were particularly light.
Feng, executive director for California Common Cause, told Bloomberg BNA that there are numerous examples of conflicts involving state attorneys general accepting political contributions from groups they are investigating, but the political spending is protected as freedom of speech pursuant to court decisions such as the U.S. Supreme Court’s Citizen’s United ruling.
She added that while the U.S. Supreme Court recognized the corruptive influence for judges in the Hugh M. Caperton, et al. v. A.T. Massey Coal Company, Inc., et al., U.S., 08-00022, 4/3/08 decision, no such limit exists for attorneys general because it’s considered more of a “political position.”
“There are bribery rules, but those require evidence of a quid pro quo agreement to be able to enforce; current legal ethics rules don’t cover campaign donations,” she said by phone.
According to Fischer, associate counsel with the Campaign Legal Center, the California Department of Justice lists conflict-of-interest rules for attorneys general and campaign contributions but only for licensing and permit proceedings.
“There are standards at the federal level for attorneys general to recuse if they have a substantial personal or political relationship with the parties involved in the prosecution, like in the recent case of U.S. Attorney General Jeff Sessions, but they don’t apply to state attorneys general and the rules don’t specify any details about campaign contributions,” he said by phone.
While there may not be restrictions on these conflicts of interest, it “doesn’t mean a good attorney should not or could not recuse,” Paul Seamus Ryan, vice president of policy and litigation with Common Cause, told Bloomberg BNA.
The donations to an attorney general’s campaign followed by a decision not to pursue a case parallel the accusations against Florida Attorney General Pam Bondi in 2016.
In September, Democratic members of the House Judiciary Committee sent a letter to then-U.S. Attorney General Loretta Lynch asking her to investigate donations from the Donald J. Trump Foundation to Bondi because they might have influenced her decision not to investigate Trump University over civil fraud allegations.
Last September, New York Attorney General Eric Schneiderman announced an investigation into the Trump foundation and whether the donations might have violated tax regulations because they were made through a nonprofit.
To contact the reporter on this story: Llewellyn Hinkes-Jones in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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