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KerrrareD.Hennrs
AttorneyGeneral California of MeRrw H. GoyBrrp SeniorAssistant AttornevGeneral FrunrnrcrW. Acrnn (Siate No. 208109) Bar Ntcrres A. Arnns (StateBar No. 2T1222) Arrv C. TnNc(StateBar No. 228133) DeputyAttorneysGeneral 455Golden Gate Ave.,Suite11000 SanFrancisco, 94102 CA (415)703-5505 Telephone: Fax: (415) 703-5480 E-mail: nicklas,akers@doj.ca.gov Attorneys Petitioner for ThePeopleof theStateof California

Exemptfrom Filing Fees Pursuant Gov.Codeg 6103 to

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SUPERIOR COURTOF THE STATEOF CALIFORNIA 10 CITY AND COLINTYOF SAN FRANCISCO 11 I2 13 t4 15 Pnopr,noF THESr.lrB oF CALTFoRNTA Ex nnr,.KA]vIALA Hlnnrs, ArronNny D. GnNnnal oF THESrarn oF CALIFoRNTA.
Petitioner.

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caseNoCP F - 1 I - 5 I 1T T z
PETITION TO ENFORCE INVESTIGATIVE INTERROGATORIES 12659] [Gov.Code$$ 1I 180et seq.;

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Respondent.

PETITIONTO ENFORCE INVESTIGATIVE INTERROGATORIES

Petitionersthe Peopleof the Stateof California, ex rel. Kamala D. Harris, Attorney General of the Stateof California, allegeas follows:

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INtnooucrroN 1. This is an action to require answersto a set of fifty-one investigative interrogatories (the INVESTIGATIVE INTERROGATORIES) issuedby the Attorney General of the State of California to the Federal Home Loan Mortgage Corporation (FREDDIE MAC) as part of her

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ongoing investigation of the mortgage and foreclosurecrisis facing California. 2. The Attomey General is the chief law officer of the State of California. She is

responsible for enforcing the state's criminal, consumer protection, and securities laws, and she exercises supervision over the state's sheriffs and district attorneys. She also regularly makes legislative and policy recommendationsto the California Legislature, and she has the authority to promulgate regulations in a variety of areas. In order to carry out these duties effectively, California law gives the Attomey General broad investigative powers-including issue subpoenas and investigative interrogatories. 3. FREDDIE MAC is a private corporation chartered by Congress. Like other the right to

corporations, has shareholders, board of directors,and a CEO. Its stock is publicly traded.l it a FREDDIE MAC and its counterpart, the Federal National Mortgage Association (FANNIE MAE), collectively own over 60% of the mortgages Califomia. in 4. The mortgage and foreclosure crisis has had a devastating impact on the people of

California. From January,2007, through June, 201l, 768,330residentialmortgageshave been foreclosedupon in California. Foreclosuresnot only affect the families who lose their homes,but also the safety,health and welfare of the entire community.

MAC's common stock, ticker synbol FMCC, is currently traded on the OTC Bulletin Board. FREDDIE MAC's stock was de-listedfrom the New York Stock Exchangeand the Chicago Stock Exchange on July 8, 2010. FREDDIE MAC had 649,722,580sharesof conrmonstock outstanding of September 2011. as 30,

'FREDDIE

PETITIONTO ENFORCE INVESTIGATIVE INTERROGATORIES

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5.

Foreclosedhomes createnumerousproblems in California. For example, abandoned

properties often become venues for a wide range of criminal activity, including prostitution and drug trafficking. 6. Foreclosed homes also create health and safety issues such as fires caused by

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overgrown yards or neglected gas and electrical connections (often damagedby metal thieves). Such fires are particularlyhazardous in high-density urban areaswhere fires can spreadquickly to nearby buildings, and in communities that are vulnerable to wildfires. Vacant properties also

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create opportunities for infestation by rats and vermin and can become dumping grounds for constructiondebris and garbage. 7. Studies by FANNIE MAE and others dernonstratethat the very presenceof vacant

homes in a neighborhood significantly affects the value of the remaining properties,reducing the value of other homes on the block by thousandsof dollars each. 8. Improper foreclosure practices can violate the rights of Californians, including those

who servein the armed forces, or who are membersof racial, ethnic or religious minorities. 9. In addition to owning thousands foreclosedhomes in California, FREDDIE MAC of

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issuednumeroussecuritiesmarketed and underwritten by a wide range of parties-and purchased by Californians. Many of those securities are now virtually worthless, and there have been seriousaccusationsof fraud in connectionwith them. Most recently, the Securitiesand Exchange Commission (SEC) charged former FREDDIE MAC senior executiveswith securities fraud and entered into a non-prosecution agreementwith FREDDIE MAC pursuant to which FREDDIE MAC doesnot contesta Statementof Facts about its deceptiveand misleading public statements. 10. In light of its central role in the mortgage and foreclosure crisis, FREDDIE MAC has extensive information that is critical to the Attorney General's investigation. The Attorney General therefore issued the INVESTIGATIVE INTERROGATORIES to FREDDIE MAC. The INVESTIGATIVE INTbRROGATORIES ask questionsthat are critical to protecting the health, safety and welfare of California residents and enforcing California law of general applicability. Specifically, the Attorney General seeksinformation concerning:

PETITIONTO ENFORCE INIVESTIGATIVE INTERROGATORIES

o Criminal activity such as drug dealing and prostitution at foreclosed homes owned by FREDDIE MAC; o Compliance of FREDDIE MAC's loan servicers and property managers with civil rights laws and laws protecting members of our armed forces against unlawful eviction or foreclosure; . Compliance with California securitieslaws; . Compliance with California tax laws; and o The presenceof toxic materials, explosives, weapons or ammunition, overgrown brush or other fire hazards, mosquito-filled pools, or other threats .to health and safety at FREDDIE MAC's foreclosed propertiesin California. 11. Despite the fact that the Attorney General has authority to issue the

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INVESTIGATIVE INTERROGATORIES, FREDDIE MAC has failed and refused to provide any of the information requestedby the Attorney General. The People therefore requestan order compellingFREDDIE MAC to answerthe INVESTIGATIVE INTERROGATORIES.

Tnn P.q.nrrns 12. Petitioner Kamala Harrisis the AttorneyGeneral the State California, D. of of and
was so at all relevant times. She brings this action solely in her official capacity on behalf of the Peopleof the Stateof California. 13. Respondent FREDDIE MAC is an investor-ownedcorporationthat doesbusinessin California. It has shareholders, directors and a CEO. Its stock is publicly traded. FREDDIE MAC's charter expresslyprovides that it can be sued in state court. On Septernber 6,2008, FREDDIE MAC's regulator, the Federal Housing Finance Authority, placed FREDDIE MAC into a temporary conservatorship. However, FREDDIE MAC remains a private corporation and continuesas an ongoing businessas it did before the conservatorship.

PETITIONTO ENFORCE INVESTIGATIVE INTERROGATORIES

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14. The Attorney General is the State's chief law enforcement officer. She has broad authority under the California Constitution, statute,and common law to bring actions to enforce the laws of the state and to protect public rights and interests. She has direct authority to investigate and prosecutecrimes, and she supervisesCalifornia's district attorneys, sheriffs, and other state and local law enforcementagencies. 15. The Attorney General is empoweredto bring actions to enforce a panoply of statutes

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relating to civil rights, environmental protection, fraud, unfair businesspractices, and a range of other subjects. She also has independentauthority to investigate and prosecutemisconduct in the offer and sale of securities. Additionally, she has the authority to promulgate regulations in a number of subject matter areas, including regulations concerning the electronic recordation of documentsrelated to land ownership. 16. To aid her in enforcing these statutes,the Attomey General possesses broad powers under California Government Code sections 11180 et seq. and 12659 to, among other things, issue subpoenas,promulgate interrogatories, and inspect books and records. The Attomey Generalmay use thesepowers for various reasons,including assistingher in consideringpossible prosecutorial actions, proposing legislation, and formulating enforcement policies with other agencies. 17. The Attorney General's investigative powers are not dependenton the initiation of a civil law suit or an administrative proceeding. The Attorney General has broad discretion and may investigatebasedon suspicion that the law is being violated or to determine that it is not. If a party disobeys a subpoenaor set of investigatory interrogatories, the Attomey General may petition the Superior Court for enforcement.

Tnn ArronNnv Gnxnnal's lNvnsrrclrroN or tnr Monrcacn.rNo Fonrcr,osunn Crusts

18. On May 23,2011, the Attorney Generalannounced creationof a Mortgage Fraud the Strike Force within the Department of Justice to investigate all aspects of the mortgage and

PETITIONTO ENFORCE INVESTIGATIVE INTERROGATORIES

foreclosure crisis facing California, from the origination of mortgage loans to the managementof properties. foreclosed 19. The Strike For'ce is tasked with determining whether laws have been violated, evaluating whether civil or criminal prosecutions are warranted, and making recommendations conceming any necessary legislation and regulation. The Strike Force also helps formulate enforcement policies within the Department of Justice and in coordination with other federal, stateand local agenciesto respondto the current crisis. 20. The Attorney General has propounded investigative subpoenasand interrogatoriesto

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a number of witnesses,including FREDDIE MAC, that have information or documentsrelevant to the investigation.

TUB INvnsrrcettvn 21.

INrrnRocltoRlBs

The INVESTIGATIVE INTERROGATORIES propoundedto FREDDIE MAC seek

information on core police power issues, including the protection of the public safety, health, welfare and morals. The information sought by the INVESTIGATIVE INTERROGATORIES will provide critical assistanceto the Attorney General in answering questions such as the following: a. Are crimes such as drug dealing and prostitution occurring in the thousands of foreclosed California homesownedby FREDDIE MAC? b. Are toxic materials, explosives, firehazards, mosquito-filled pools, or other dangers to the health or safety of Californians present at foreclosed homes owned by FREDDIE MAC? c. How should state and local law enforcement and regulatory agencies addressthe problems posed by foreclosed properties? How should they coordinate those efforts with other agencies,including federal law enforcementand regulatory agencies? d. Are taxesbeing paid on foreclosed homes owned by FREDDIE MAC in compliance with California law, as expresslyauthorizedby 12 U.S.C. $ la52(e)?

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PETITIONTO ENFORCE INVESTIGATIVE INTERROGATORIES

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Have military families, including mernbers the CaliforniaNational Guard,been of illegally foreclosed uponor evictedby loanservicers propertymanagers? or

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Did brokers,underwriters, former corporate officials, or othersviolate California's securitieslaws in connectionwith the marketing or sale of securitiesissuedby FREDDIE MAC, particularly in light of the SEC's chargesagainst FREDDIE MAC's formerexecutives the factsrecitedin FREDDIEMAC'S non-prosecution and agreement the SEC? with

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propertymanagers, Did loan servicers, attorneys, othersmakefalsestatements or to California state courts, county recorders,or other officials in connectionwith foreclosures, governed Californiastate evictions,or otheractionsor proceedings by law?

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propertymanagers, othersviolatedCaliforniacivil rightslaws Haveloan servicers, or in connection with foreclosures, or evictions, the servicingof loans?

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Are legal or regulatory reformsneeded address harmful effectsof foreclosures to the process? on Californiacommunities to fix the foreclosure or

22. A true and conect copy of the INVESTIGATIVE INTERROGATORIES attached is heretoasExhibit A. 23. On November 2011, INVESTIGATIVEINTERROGATORIES properly 15, the were served FREDDIEMAC. A true andcorrectcopy of the proof of serviceis attached on heretoas ExhibitB.

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Fnrporn M.lc's REFusA.r, ANSwER INrBRRocA,roRrns ro urn 24. FREDDIEMAC hasfailedto answer INVESTIGATIVEINTERROGATORIES. the 25. On November28, 201I, two Deputy Attorneys Generalfrom the MortgageFraud Strike Force spoke with counsel for FREDDIE MAC's conservator to discuss the INVESTIGATIVE INTERROGATORIES. The Strike Force attorneysansweredall of the questions, conservator's verballyto narrowthe scopeof certainrequests, volunteered agreed and to work cooperatively with FREDDIEMAC andits conservator.
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On December9,2011, the conservator'soutside counsel sent a letter to one of the

Strike Force attorneys, a true and correct copy of which is attached as Exhibit C. The letter dernandsthat the Attomey General withdraw the INVESTIGATIVE INTERROGATORIES, and assertsthat "no state Attorney General has the authority to issue an administrative subpoenaor investigative interrogatories to IFREDDIE MAC], and no court may compel a responseto such interrogatories." 27. The conservator'sposition is incorrect. No law exempts FREDDIE MAC from INTERROGATORIES. The

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responding to the Attorney General's INVESTIGATIVE

conservator contends that federal law preempts the Attorney General from issuing the INVESTIGATIVE INTERROGATORIES. but none of the authorities cited bv the conservator supportthis position. 28. For example, the conservatorrepeatedly cites the federal visitorial powers doctrine in

support of its preemption claims. However, the visitorial powers doctrine is a creatureof statute, and by its terms appliesonly to nationalbanks. (12 U.S.C. $ a8a(a) ['No nationalbank shall be subject to any visitorial powers except as authorizedby Federal law . . . ."1.) FREDDIE MAC

is not a national bank. It is therefore not covered by the visitorial powers doctrine. Moreover, there is no analogousprohibition on the state exerciseof visitorial powers in any of the statutes governingFREDDIE MAC. 29. Additionally, the conservator'spreemption argument relies on a faulty premise - that

the Attorney General is attempting to "regulate" FREDDIE MAC. She is not. She is gathering information by posing questionsto a percipient witness. 30. The conservator also claims that its own governing legislation bars the Attorney But the INVESTIGATIVE INTERROGATORIES are not

General from investigating i/.

addressed the conservator. They.are addressed FREDDIE MAC and only seek information to to from FREDDIE MAC. FREDDIE MAC is not a govenrmental agency and did not become one by virtue of being placed in a temporary conservatorship. It is a private corporation and its recordsremain private corporaterecords.

PETITIONTO ENFORCE I}N/ESTIGATIVE INTERROGATORIES

31. Further,real propertyownedby FREDDIE MAC is "subjectto State,territorial, county, municipal, or local taxation to the same extent accordingto its value as other real property taxed." (12 U.S.C.$ 1a52(e).) is NeitherFREDDIEMAC nor its conservator explains why the Attorney Generalcannotinvestigate whetherCalifomia taxeshavebeenpaid on these properties. 32. More generally,FREDDIE MAC and its conservator not explain why they are do frustrating AttorneyGeneral's the effortsto investigate combatcrime,blight andotherthreats and

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to the healthand safetyof Californians.It is the AttorneyGeneral andnot FREDDIEMAC or its conservator who has the primary duty to abate public nuisances and investigateand prosecute properties California. in crimescommitted foreclosed at 33. Finally, the conservator contends that answering the INVESTIGATIVE INTERROGATORIES would imposeanundueburdenon FREDDIEMAC. As notedabove, the Attorney General's Strike Force has already expressedits willingness to cooperatewith FREDDIEMAC to address concerns regarding burdensomeness. Moreover, FREDDIEMAC any is an extremelylarge enterprise, not a "mom and pop" company. It has more than 5,200 employees, assets 52,261,780,000,000, annual of administrative expenses $1,546,000,000. and of It is well within FREDDIE MAC's ability to answer these interrogatories, which call for informationasstraightforward a list of the properties ownedby FREDDIEMAC in California. as

Tnrs Counr's Aurnonrrv 34.

to Ononn CoNrpr,r.tNcnwrrH rHn INrnRRocA.roRrns

GovernmentCode section 11187 provides that if a witness has failed and refusedto

answer investigative interrogatories,the head of the department issuing the interrogatories may petition the Superior Court for an order compelling compliance. That section further provides that a proceeding, such as this one, brought by the Attorney General or other appropriateofficial shall be the sole vehicle for determining the validity of any objections to the interrogatories.

PETITIONTO ENFORCE INVESTIGATIVE INTERROGATORIES

Pnayrn ron Rrr,rnr Pursuant Government to Codesections 11187andl2659,theAttorneyGeneral praysthat this Court: l. Issuean orderdirectingFREDDIEMAC to appear beforethis Courtandto show

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cause why it hasrefused complywith the INVESTIGATIVE INTERROGATORIES upon to and, FREDDIEMAC's failureto showcause, enteranorderdirecting FREDDIEMAC to give complete, responsive verifiedanswers the INVESTIGATIVE INTERROGATORIES; and to and

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2.

Award the People just, properand suchotherandfurtherrelief the Courtdeems

equitable, including costs all allowed law. by

I Dated:December 1.ZOtt

Respectfully Submitted, Kevnra D. Hennrs Attorney General California of MenrnqH.Goyrrrs Senior Assistant Attornev General FnnorRrcrW. Acrnn
AMY C. TENc Deputy Attorneys General

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Nrcrres A. ArEns Deputy Attorney General
Attorneysfor Petitioner The People of the State of California
sF20lI 103410 40501595.doc

PETITIONTO ENFORCE I}.IVESTIGATIVEINTERROGATORIES