Waters for Elephants
Why couldn't the Democratic Congress conduct an ethics trial for Rep. Maxine Waters?
As 2011 dawns there lingers in Washington an old and unresolved scandal from 2010: House ethics committee charges that Rep. Maxine Waters, D.-Calif., violated House rules by steering $12 million in bailout funds to a minority-owned bank called OneUnited, in which her husband owned shares. It is crystal clear that OneUnited got very special consideration from Waters' chief of staff (and grandson), Mikael Moore, and from the staff of the House financial services committee. Taxpayers deserve to know why.
By now we were supposed to be done with Waters' trial, originally scheduled for Nov. 29. Instead, the trial has been postponed indefinitely due to some unexpected drama on the ethics committee itself. In a decision remarkable for its secrecy—what's that about transparency again?—the committee delayed the trial and put two of its prosecutors on administrative leave. Waters has used this to argue that the case against her is trumped up. It "demonstrates that the committee does not have a strong case and would not be able to prove any violation has occurred," she said in a written statement.
From the beginning, Waters has been aggressive in her defense. A key part of the allegations against her is that she failed to supervise Moore, who the ethics committee states was "actively involved" in helping OneUnited. It's indisputable that in the fall of 2008 Moore received multiple e-mails from OneUnited asking for money. Both Waters and Moore have argued that he was merely a passive recipient of these messages. Waters also told investigators that around Sept. 20, when she realized OneUnited wanted money, she concluded that she faced a potential ethical conflict if she remained involved. At that point, Waters said, she told Rep. Barney Frank, D.-Mass, then the chairman of the powerful House financial services committee: "I can't deal with that."
This version of events became harder to argue after the ethics committee uncovered an e-mail from Moore under the subject line "Bailout." Moore sent it on Sept. 28, 2008 to staffers on Frank's financial services committee. In the e-mail, Moore thanked the committee staff for its "extreme responsiveness" to "the issues raised by Rep. Waters" in several different areas, including the "small bank language." (The "small bank language" was the section in the bailout bill that regulators subsequently relied on to prevent OneUnited's failure.) "If there [are] any material or technical changes to the language as last agreed upon, please alert me as soon as possible so that Rep. Waters has a chance to weigh in," Moore wrote. "It would not be acceptable to receive a copy after it is final." And then he added this: "I would like to flag what appear to be two drafting errors … in the draft small bank language, the word 'financial' was left out before the word 'assistance.' Please include 'financial" before assistance." And indeed, the final language of the bill explicitly stated that financial institutions in OneUnited's very specific category should receive not just assistance, but "financial assistance."
Waters told the Washington Post that the e-mail "does not provide any new significant information" and that it "does not reflect any action on behalf of any specific company." But that's not how the ethics committee lawyers saw it when they first became aware of the e-mail just a few weeks before the Nov. 29 trial was set to occur. On Nov. 3, Stacey Sovereign, a committee attorney, sent an e-mail to the committee members and staff. "Committee counsel believe it is necessary to bring to your attention new evidence related to the matter regarding Rep. Waters," she wrote. Sovereign argued that Moore's statements "demonstrate greater involvement by Moore and more knowledge of Moore's activities by Rep. Waters than was understood." Sovereign pointed out that Waters had previously testified that the bailout provision was "Barney Frank's legislation," and that she was "unaware that Moore was taking any action on behalf of OneUnited during this period."
Sovereign and other committee staff lawyers were vexed that Frank's staff, which had voluntarily provided documents, hadn't previously turned over this e-mail. (On Dec. 9, Frank wrote a letter to the committee, saying that "we complied fully"; a spokeswoman says that the committee's request "referenced specific subjects" and that "none of those subjects were referred to in Mr. Moore's email." The investigators were also troubled by seeming inaccuracies in the statements they'd gotten from Frank's staff. Sovereign wrote: "For example, the FSC Staff Director told Committee counsel that she 'did not know' if Rep. Waters or anyone on her staff played any role in the drafting of [the bailout bill.] This statement is directly contradicted by the email."(Emphasis in the original.)
To summarize: The evidence against Waters (and certainly against Moore) was stronger than the committee previously knew. What did the ethics committee choose to do with this new information? It announced the trial's postponement and on the very same day the committee's staff director fired Sovereign and Morgan Kim, the committee's deputy chief counsel, who was a former prosecutor in the Florida U.S. attorney's office.
Why were the committee prosecutors sacked? According to the Washington Post, committee chairwoman Rep. Zoe Lofgren, D.-Calif. (who in the new Congress will be replaced by Rep. Jo Bonner, R.-Ala.) has been saying the two lawyers "misled" her about the probe. (Lofgren's office declined to comment on any of this.) There's also chatter that the prosecutors continued to pursue evidence after the committee's vote to hold a trial, which was somehow a no-no. In any event, it turned out the committee's own rules prevented the lawyers from being fired without a majority vote. So they were placed on indefinite paid "administrative leave" instead.
There may be a perfectly valid reason for the suspensions. But one thing is clear: It's not because Kim or Sovereign lacked prosecutorial zeal. Possibly they were dismissed for being too zealous—for acting too much like judicial prosecutors, rather than the congressional staff members they were. Congressional staff are typically expected to show considerable deference to members of Congress.
There are other conflicting story lines. For instance, according to the Washington Post, Lofgren originally wanted the trial to be held in mid-September, but staff lawyers said (via e-mail) that this was "impossible." And yet, according to a Sept. 17 memo sent to the committee members and staff by staff counsel Tom Rust, the staff had tried to set three different schedules for trials beginning either Sept. 14, Sept. 28, or Nov. 8, and was telling the committee it was ready to go at any moment.
Clearly there was tension between Lofgren and her committee staff. On Oct. 13, staff counsel Sheria Clarke wrote a memo to Lofgren and other committee members saying the staff was "troubled" about various decisions. For instance, Lofgren had ruled that the committee lawyers were to have just six hours to present their case. "These time constraints," Clarke wrote, "raise serious concerns about the ability of Committee counsel fairly and fully to present the case."
According to a transcript of a Sept. 23 meeting with the committee members and the staff, it was Lofgren who decided that there would be no trial before the election. During a discussion about timing, Bonner, the highest-ranking Republican on the committee, said somewhat prophetically: "And if, God forbid, this thing goes into the 112th Congress, I just think we are all stained for life in terms of our inability to get this thing done." Lofgren replied: "I think it's clear that we are not going to have this hearing before the election." Later, Bonner said again, "I'm asking you for reconsideration of the statement that we cannot do this." Another committee member, Rep. G.K. Butterfield, D., N.C., said: "It's impossible." Lofgren seconded that: "It's impossible." Bonner replied: "Well, but is it impossible to ever do it?" Good question!
One likely consideration for Lofgren was that the ethics committee was already preparing to put another prominent African-American politician, Rep. Charles Rangel, D., N.Y., on trial. (He received a censure in early December.) The transcript suggests that Lofgren was nervous Waters might play the race card. "She [Waters] thinks this is a civil rights issue," Lofgren said. "She came up and said, 'Do you think this is a civil rights issue?' And I said, 'No, I don't.'" But, Lofgren continued, "That's why I think it is so, so important that when we are doing this that we have dotted every 'i,' we have crossed every 't.' There will never be any, any question that what we are doing is in the regular order, that it has been done dispassionately without any bias or unfairness at all. That is just essential."
On Dec. 9, Waters threatened to bring to the House floor a resolution demanding an investigation as to why Kim and Sovereign were suspended if the ethics committee won't provide a public explanation. That's hard to argue with. If there's a good reason, we deserve to know what it is. If there isn't, the prosecutors deserve to have their names cleared. But the same argument applies to Waters herself. Instead of burying the evidence of its own dysfunction, Congress should stop dithering and hold a trial, so that Waters too has the opportunity to clear her name—and more importantly, so that taxpayers can find out what she did or didn't do on behalf of OneUnited. Funny thing, though: In that Dec. 9 floor speech, Waters didn't say that should happen. Draw your own conclusions.
Bethany McLean is a contributing editor at Vanity Fair and the co-author of All the Devils Are Here: The Hidden History of the Financial Crisis.
Bethany McLean writes a weekly business column for Slate and is a contributing editor to Vanity Fair. She is the author (with Joe Nocera) of All the Devils Are Here: The Hidden History of the Financial Crisis and (with Peter Elkind) "The Smartest Guys In The Room."