2014-10-31 - Timothy Lee - OSC Supporting Brief (Retaliation) - Final

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October 31, 2014

Honorable Carolyn LernerSpecial CounselU.S. Office of Special CounselComplaints Examining Unit1730 M Street, NW, #300Washington, D.C. 20036

Re: Timothy Lee, FHFA-OIG

Dear Ms. Lerner:

The Government Accountability Project (GAP) represents Timothy Lee, who served as aSenior Policy Advisor at the Office of the Inspector General (OIG) at the Federal HousingFinance Agency (FHFA). As explained below, in the latter half of 2012, Mr. Lee analyzed theeffect of the well-known London Interbank Offered Rate (LIBOR) interest rate manipulation onthe financial health of Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac,two mortgage giants that FHFA oversaw through a conservatorship in the aftermath of theeconomic recession. In short, Mr. Lee’s analysis concluded that losses on the GSEs’ floatingrate bonds and interest rate swaps may have exceeded $3 billion. Mr. Lee reported his findingswithin FHFA-OIG, as well as through other channels. OIG failed to quantify the sizeable losses

the GSEs likely suffered from the LIBOR manipulation, even in light of specific requests forinformation from two notable U.S. Senators, Charles M. Grassley and Mark Kirk.

Consequently, Mr. Lee further disclosed his report and calculations outside of FHFA andGovernment channels through the media to ensure the information would reach interestedmembers of Congress and the public, thereby prompting action. Notably, none of theinformation relied upon by Mr. Lee in his report was private or confidential. It was notclassified. There have been no accusations that its release was specifically prohibited by statute.All of the data used for his analysis were publicly available.

Unfortunately, in direct response to Mr. Lee’s disclosure, armed OIG agents detained and

interrogated him for six hours in plain view of other OIG staff. They threatened him with anadministrative search warrant directed at Mr. Lee’s personal emails and files that weremaintained at his home. To avoid a search of his home under the auspices of a criminalinvestigation, Mr. Lee was forced to sign a resignation agreement containing terms that, inter

alia, waived his rights to make any further disclosures without prior approval, as well as allrights to file a claim or grievance regarding his treatment that day. OIG’s activities amount to aclear-cut violation of multiple prohibited personnel actions under 5 U.S.C. § 2302, as theretaliatory investigation and other threats against Mr. Lee were specifically because of his



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protected whistleblowing disclosures. Mr. Lee now seeks corrective action under 5 U.S.C. §1214. Please also find attached the Affidavit of Mr. Lee in support of this complaint.

FACTS

Introduction

Timothy Lee was a Senior Policy Advisor at FHFA-OIG. He previously had significantexperience for more than a decade as a finance executive on Wall Street after earning hisBachelor’s degree in mechanical engineering, as well as his Master’s degree in BusinessAdministration, with concentrations in finance and operations management, both from theUniversity of Pennsylvania.

After his Wall Street days and prior to his tenure at FHFA-OIG, Mr. Lee served as aSenior Policy Advisor to the Special Inspector General for the Troubled Asset Relief Program

(SIGTARP), which was administered by the U.S. Treasury to provide financial relief tocollapsed banks and financial institutions. Affidavit of Timothy Lee (“Lee Aff.”) ¶¶ 4-7. AtSIGTARP and from the very start at FHFA-OIG, Mr. Lee contributed exceptional subject matterexpertise, including a report on the irregularities of Freddie Mac’s efforts to seek reimbursementfor defective loans purchased from Bank of America. This report identified potential savings toFreddie Mac ultimately estimated at $2.2 billion to $3.4 billion. See Lee Aff. ¶¶ 7-10.

Mr. Lee’s protected disclosures at FHFA-OIG that underlie this complaint originatedfrom the LIBOR rate manipulation scandal that adversely affected global and U.S. securitiesmarkets. LIBOR is a short-term floating interest rate benchmark set by commercial banks thatreflects those banks’ borrowing costs. In certain major financial markets, commercial lendersalmost universally peg key contractual interest rates to LIBOR. In recent years, it wasdiscovered that the 16 major financial institutions that set the LIBOR rate manipulated it in orderto benefit themselves rather than reflect an honest market rate. See Lee Aff. ¶¶ 11-14. Some,such as Barclays, have already admitted wrongdoing and faced penalties for this activity. Mr.Lee calculated that mortgage giants Fannie Mae and Freddie Mac, both GSEs, lostapproximately $3 billion as a result of this fraudulent rate manipulation. Given that FHFA wasthe conservator for these GSEs, he reported his findings within OIG for action. His findingswere particularly sensitive given that the Department of the Treasury included the GSEs in its bailout program, thereby committing taxpayer funds to support their continued survival.

Financial Analysis and Disclosures

After Barclays settled with the U.S. Department of Justice in late June 2012 over itsalleged manipulation of the LIBOR index, Mr. Lee became concerned about the LIBORmanipulation’s effects on mortgage giants Fannie Mae and Freddie Mac. The GSEs heldenormous portfolios of mortgage loans that were exposed to a high degree of risk. To managethis risk they invested in floating interest rate swaps, which were indexed to the LIBOR rate.Lee Aff. ¶¶ 12-15. The GSEs furthermore purchased hundreds of billions of dollars in mortgage-



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backed securities with interest rates also tied to LIBOR. Lee Aff. ¶¶ 16-17. Thus an artificialmanipulation of this rate stood to adversely affect all of these investments.

By July 5, 2012, Mr. Lee had circulated a memorandum within OIG about the potentialfinancial losses to the GSEs as a result of LIBOR manipulation, and by early August he had

received support from the head of the OIG policy group to pursue an inquiry with relevantofficials at FHFA, the GSEs, and the Department of Justice. His discussion with relevant FHFA,GSE, and DOJ personnel resulted in general support for further inquiry into the matter. Lee Aff. ¶¶ 18-20. From July to October 2012, Mr. Lee conducted in-depth research, reviewing theGSEs’ published financial statements and comparing the published LIBOR rate to a similar published rate as a worthy proxy for an appropriate LIBOR value. In doing so, he relied on public sources of information and industry-recognized methodologies, and did not useconfidential or proprietary information in his analysis. Lee Aff. ¶¶ 21-24. Through this analysis,he discovered that together Fannie Mae and Freddie Mac lost approximately $3 billion as a resultof the manipulated rates. By suppressing the interest rates, the LIBOR banks materially reduced payments to the GSEs on their investments in interest rate swaps and mortgage-backed

securities. Lee Aff. ¶ 24-26. Based on his months of detailed research, Mr. Lee, through internalemails and a memorandum circulated within OIG, also expressed concerns of possible FalseClaims Act and 1933 Securities Act violations stemming from the fraud. Lee Aff. ¶ 27.

On September 11, 2012, Mr. Lee and the head of his policy group, Richard Parker, metwith FHFA staff to discuss his preliminary findings of potential GSE losses due to LIBOR. Mr.Lee was asked to verify his calculations and methodology with a third party, so on September 27,2012, he met with two private sector executives from a New York investment advisory firmwhich had previously worked with both Freddie Mac and the Treasury Department. After themeeting, Mr. Lee sent a memorandum to the policy group head detailing how the investmentexecutives agreed with his LIBOR loss calculation methodology, and Mr. Lee followed up withan Action Memorandum on the matter weeks later. Lee Aff. ¶¶ 29-31. In mid-October 2012,FHFA sent letters to Fannie Mae and Freddie Mac asking both entities to look into possiblelosses stemming from LIBOR manipulation. See Lee Aff. Exhibit 12. Around the end ofOctober 2012, Mr. Lee met with Inspector General Steve Linick, Deputy Assistant InspectorGeneral Michael Stephens, Director for Special Projects David Seide, the head of the Office ofEvaluations, George Grob, and Parker. At this meeting, Mr. Lee emphasized the need for OIG totake action on the GSE LIBOR losses, and guided them through his calculations and resulting $3 billion estimate. Lee Aff. ¶ 33. IG Linick suggested that the agency publish Mr. Lee’smemorandum of findings but omit the $3 billion estimate. Lee Aff. ¶ 34.

On November 2, 2012, OIG submitted Mr. Lee’s memorandum to the Acting Director ofFHFA, Ed DeMarco. Mr. Lee was not invited to any subsequent meetings among OIG andFHFA staff, and was instructed by superiors not to discuss any of his findings outside of OIG.Lee Aff. ¶¶ 35-36. For all practical purposes, he was removed from the case. In spite of theseverity of the losses to the GSEs and intimations from Parker and Grob that they were stronglyin favor of publication, the whole month of November passed without any action. Lee Aff. ¶¶35-36. A November 15, 2012 response memorandum from Jon Greenlee, the Deputy Directorfor Enterprise Regulation at FHFA, to Parker and Grob, acknowledged the importance of theissue and the need to address the recommendations included in Mr. Lee’s memorandum, further



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legitimizing his concerns (coincidentally this memorandum made it to the press, but Mr. Lee wasnot the individual who disclosed it). Lee Aff. ¶ 50. At no point had anyone at OIG, FHFA or theGSEs objected to his third-party verified methodologies, and Mr. Lee insisted on both publication of his memorandum as well as the Excel spreadsheet he created to break down hisfindings, only to be met with denial by his superiors. Lee Aff. ¶ 37. The October and November

2012 correspondence between OIG, FHFA and the GSEs shows how Mr. Lee’s findings droveFHFA to instruct the GSEs to look into the matter, showing the legitimacy and validity of hiswork. See Lee Aff. Exhibits 7, 12, 15 (Exhibit 15 consists of an excerpt from the agency’s FifthSemiannual Report demonstrating how Mr. Lee’s methodology was used to describe the interestrate differential, thus providing a seemingly implicit endorsement of his approach to the matter).Yet as the quantifiable damage to the GSEs became clear, OIG continued to censor the scope ofthat fraud. It was only in the aftermath of the external disclosure to the media and after Mr.Lee’s forced resignation (discussed infra) that action was taken by the GSEs, still in theconservatorship of FHFA, to recover their losses. The regulators and the companies were leftwith no choice once the full scope of the damage became public.

External Disclosure

Mr. Lee exhausted all internal channels within OIG, as well as at FHFA and the GSEsthemselves. OIG neither published nor pursued the matter any further. Mr. Lee wasmarginalized and isolated from any relevant discussions on how to follow through in spite of thefact he was the financial expert who made the verified calculations. With nowhere else to gowith his report of substantial losses to the GSEs, Mr. Lee contacted a reporter from the Wall

Street Journal and gave her an outline of his findings. Based on her interest in the matter, in late November Mr. Lee provided this reporter a copy of his memorandum but withheld permissionfor her to publish a story based on it. Lee Aff. ¶ 39.

Around December 10, 2012, with nothing yet publicly disclosed, Parker relayed to Mr.Lee instructions from the OIG Chief of Staff, Emilia DiSanto, to draft a memorandum about hisfindings for Senators Grassley and Kirk. However, he would only be permitted to acknowledgein this memorandum that OIG had performed some work on the LIBOR issue, but could not statethat the GSEs lost approximately $3 billion. Lee Aff. ¶ 40. Mr. Lee subsequently provided thismemorandum to both DiSanto and David Seide. Disturbed by what was a serious dumbing downof the complete findings and the fact that OIG would not even report the dollar figure of losses toCongress, Mr. Lee again contacted the same Wall Street Journal reporter. With his permissionon December 18th, the reporter published a story on December 19th and included a copy of Mr.Lee’s original LIBOR memorandum, complete with the dollar amount of losses. Lee Aff. ¶ 41;Exhibits 6, 9.

Promptly after the Wall Street Journal story appeared along with Mr. Lee’smemorandum, Congressman Peter Welch posted a press release acknowledging the news of the$3 billion in losses to Fannie Mae and Freddie Mac, and renewing his prior call for DOJ toaggressively prosecute the LIBOR manipulators. In addition to the Wall Street Journal, the New

York Times, Bloomberg News, BusinessWeek , the Financial Times, and BFMTV of France all picked up the story, implying its profound importance. Lee Aff. ¶ 42. The New York Times, forexample, cited support for Mr. Lee’s analysis by an independent asset management firm, and



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even stated how his work had “done the financial sector a favor” by providing a sound analyticaltemplate for estimating LIBOR losses. Lee Aff. Exhibit 11.

Detention, Interrogation, Intimidation

On January 4, 2013, sometime between 11:00 and 11:30am, OIG Special Agents VictorCunicelli and Stephan Reimers came to Mr. Lee’s office, asked to see him and escorted him to aconference room. There he was shown a disclosure document indicating that he was the subjectof an administrative investigation. Mr. Lee was not informed verbally, nor did he see any such provision in the disclosure document, about any right to have an attorney present. Lee Aff. ¶¶45-46. The interrogation began, and Mr. Lee was asked if he had been the one to disclose hisLIBOR findings to the press, to which Mr. Lee responded in the affirmative. Lee Aff. ¶ 47.Throughout the interrogation, which lasted approximately 6 to 6 ½ hours, Mr. Lee notablyobserved Agent Cunicelli’s pistol magazine and handcuffs visible throughout the entire time.Lee Aff. ¶ 45, 66. The agents asked about whom Mr. Lee had contacted and when, and he againanswered truthfully. Lee Aff. ¶ 48. Agent Cunicelli then informed Mr. Lee of OIG’s policy that

contact with media must first go through a designated press officer. Lee Aff. ¶ 49. The agentsthen asked him why he had disclosed the memorandum, to which Mr. Lee responded that theapproximately $3 billion in losses was too great to be withheld, and that he felt a duty to disclosehis full and complete findings in spite of OIG leadership’s desire to do otherwise. Lee Aff. ¶ 50.

With a raised voice, Agent Cunicelli alleged that Mr. Lee, in spite of making hiscalculations with publicly available data and a methodology that was verified by expert third parties, had disseminated confidential information to the press. Yet Mr. Lee’s memorandum wasnever labeled “confidential.” Cunicelli also stated that Mr. Lee’s disclosure of his completefindings to the press undermined the relationship between OIG and the main FHFA agency. LeeAff. ¶¶ 51-52. Mr. Lee requested that Richard Parker and the head of the Office ofInvestigations, Peter Emerzian, be informed of his detention and interrogation. While Cunicelliclaimed to not be able to make contact with Parker or Emerzian, he indicated he wished to notifyDiSanto and Stephens about what had been discussed in the interrogation. Lee Aff. ¶ 53. WhileMr. Lee spoke directly with Chief Counsel Bryan P. Saddler and Parker during his detention, hewas also directly informed of Linick’s, DiSanto’s and Stephens’s involvement in the decision tointerrogate and compel his resignation. Lee Aff. ¶ 63.

Agent Reimers then produced what Mr. Lee believed to be the administrative equivalentof a Subpoena Duces Tecum requiring that he produce all personal emails from August 2012 tothat day. Agents Cunicelli and Reimers also made the strange and fairly extreme request to go toMr. Lee’s home to print a copy of the email Mr. Lee sent to the Wall Street Journal reporter todisclose his memorandum. Lee Aff. ¶ 54. Cunicelli expressed a desire to obtain this particularemail to ensure that Mr. Lee’s admission of sending the memorandum was legitimate. Lee Aff. ¶54. Neither agent presented a warrant for this desired search and seizure. Citing his own privacy, Mr. Lee declined to produce all of his personal emails dating back months. As hisdetention continued with no way to voluntarily exit, Mr. Lee did agree to produce the pertinentemail personally at his home if the agents rescinded the broader subpoena (or again, whatappeared to be a subpoena). Lee Aff. ¶¶ 55-56. After an apparent discussion with seniormanagement about a trip to Mr. Lee’s home, Cunicelli stated that the subpoena had already been



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signed and produced, and Mr. Lee asked for a copy and indicated he would have to consult witha lawyer. Lee Aff. ¶ 56.

Cunicelli and Reimers then spent multiple hours grilling Mr. Lee about topics completelyunrelated to his LIBOR findings. They questioned him about the décor of his office, his

LinkedIn profile, and a personal article Mr. Lee wrote regarding the government’s use of drones.Continued and extended interrogation on irrelevant and benign topics eventually led back todiscussions about Mr. Lee’s personal opinion that was critical of OIG auditors and seniormanagement. Lee Aff. ¶¶ 57-59.

As previously stated, the detention and interrogation lasted about 6 to 6 ½ hours. Mr. Leewas kept in the room under constant supervision, including by perceptibly armed OIG agents,without any option of leaving. His only time out of that room during the course of those severalhours was for brief bathroom breaks, at which times he was escorted by at least one agent between the detention room and the bathroom, all the while on open display to the rest of theagency staff.

Forced Resignation

Eventually the OIG Chief Counsel, Bryan Saddler, entered the conference/detentionroom. He offered Lee the opportunity to resign in exchange for having no adverse personnelnotations on his record, but Mr. Lee declined the offer. Lee Aff. ¶ 60. Parker subsequentlywarned Lee that a court fight would risk damage to Lee’s reputation and his career, and for thesecond time during that session advised him against seeking counsel because of how expensive itwould be. Lee Aff. ¶ 61. Lee mentioned a desire for severance terms in any possible resignationagreement, and Parker suggested one month’s paid administrative leave, and ran through otherkey points with Lee. Parker left the room and then returned with a resignation agreement. See Lee Aff. Exhibit 13. Perceiving no other choice and fearing further interrogation and unlawful prying into his private emails and files, Mr. Lee ended the ordeal by signing this resignationagreement under duress. Lee Aff. ¶ 64.

The resignation agreement notably contained provisions expressing OIG’s concern withthe possibility of Mr. Lee commencing a claim or grievance premised on his treatment by OIGagents and officials on the day of his detention and forced resignation. In multiple paragraphswithin the agreement, the agency includes language of blanket waiver and release by Mr. Lee ofany right to bring a claim against the agency, such as before the Office of Special Counsel orMerit Systems Protection Board. Lee Aff. ¶ 65; Exhibit 13. For example, the agreement statesthat Mr. Lee will not appeal his resignation, or any claims arising out of or related to the OIG’sinvestigation, to any Federal agency, forum or court .” Lee Aff. Exhibit 13 § Second ¶ 4(emphasis added). It goes on to state that Mr. Lee “forever release[s] and waive[s] his right tofile any complaint, claim lawsuit grievance, or appeal against the OIG, its officials, employees,former officials or former employees, or their successors and assignees . . . in any state orFederal court, or before any administrative body, tribunal, board, or commission, regarding anymatter that is in any way related to his employment by the OIG.” Id. ¶ 5 (emphasis added).

The agreement goes on to state explicitly that:





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related losses. In its complaint, the NCUA notably cited Mr. Lee’s memorandum for its analysisthat LIBOR was artificially lower than it should have been. Lee Aff. Exhibit 8 ¶¶ 123-25.

PROHIBITED PERSONNEL PRACTICES

The following is an itemized summary of the specific prohibited personnel practicesalleged in this complaint, based on the facts as stated herein and in Mr. Lee’s Affidavit, alongwith their corresponding statutory violations:

(1) Removal from Duties (b)(8) violation(2) Removal from Duties (b)(9) violation(3) Removal from Case (b)(8) violation(4) Removal from Case (b)(9) violation(5) Retaliatory Investigation (b)(8) violation(6) Retaliatory Investigation (b)(9) violation

(7) Threatened/Constructive Termination (b)(8) violation(8) Threatened/Constructive Termination (b)(9) violation(9) Gag Provisions (b)(13) violation(10) Search and Seizure (4th Amendment) (b)(12) violation(11) Lack of Due Process (5th Amendment) (b)(12) violation(12) Suppression of Speech (1st Amendment) (b)(12) violation

LEGAL ANALYSIS

The FHFA-OIG violated the prohibited personnel action provisions, 5 U.S.C. §§2302(b)(8) and (b)(9) of the Whistleblower Protection Act (WPA) when it terminated Mr. Lee byforcing his resignation. Additionally, the resignation agreement forced upon Mr. Lee insubstance violated the whistleblower exception to nondisclosure provisions as contemplatedunder 5 U.S.C. § 2302(b)(13) by including a blanket gag order on Mr. Lee’s ability to make aclaim or grievance, or report violations of law, rules or regulations to appropriate fora such asCongress, the Office of Inspector General, OSC and Merit Systems Protection Board. Theentirety of OIG’s actions furthermore violated 5 U.S.C. § 2302(b)(12), as they were incontravention of multiple merit system principles enumerated under 5 U.S.C. §§ 2301(b)(4),(5)and (9).

Jurisdiction

As an analyst at FHFA-OIG, Mr. Lee occupied a covered position at a covered federalagency pursuant to 5 U.S.C. §§ 2302(a)(2)(B) and (C).

DIRECT RETALIATION FOR WHISTLEBLOWING

5 U.S.C. § 2302(b)(8)



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PROTECTED ACTIVITY

Mr. Lee’s disclosures were protected under Section 2302(b)(8) because Mr. Leereasonably believed there was abuse of authority, as well as associated illegality and grossmismanagement by OIG leadership in its decision to suppress parts of Mr. Lee’s findings on the

LIBOR losses sustained by the GSEs. OIG leadership instructed Mr. Lee to remove the $3 billion figure from his report and from correspondence to Congress on the matter, in spite ofrequests from Senator Charles M. Grassley and Senator Mark Kirk for information the agencyhad on LIBOR losses suffered by the GSEs. Mr. Lee insisted on notifying Congress of the fullscope of the damage. After OIG management failed to do anything about conveying Mr. Lee’sfull findings to Congress in the face of its requests for just such information, Mr. Lee went to areporter to make the anonymous disclosure himself. It was this that prompted FHFA-OIG agentsto unlawfully detain and interrogate Mr. Lee and force his resignation.

Disclosures

Mr. Lee’s disclosures to OIG management and subsequently to the reporter about theLIBOR findings, which were not previously known to the public, constituted a “disclosure”under Section 2302(b)(8) and the overall spirit of the WPA. See Horton v. Dept. of Navy, 60M.S.P.R. 397, 402 (1994), aff’d , 66 F.3d 279 (Fed. Cir. 1995). It is also a “disclosure” under thelaw because it evidenced a violation of law. By going to OIG management and then the media,Mr. Lee disclosed this information “to someone other than the alleged wrongdoer, who may have been in a position to do something about the issue . . . either directly through managementauthority, or indirectly as in disclosure to the media or Congress.” Haskins v. FDIC , 2011MSPB LEXIS 3603, *7; see, e.g., Chambers v. Dept. of Interior , 116 M.S.P.R. 17, 29 (M.S.P.B.2011) (disclosures to Washington Post reporter concerning decreased police patrols and thediversion of park police from national parks, and the resultant increase in drug dealing,constituted a protected disclosure under 5 U.S.C. § 2302(b)(8)).

Mr. Lee took persistent measures to bring attention to a serious and egregious problem –this went beyond merely making a report on a research assignment. Mr. Lee extensivelyresearched and exposed a multi-billion dollar loss to the GSEs, which had been bailed out withtaxpayer money, as a result of LIBOR fraud that OIG leadership wished to downplay ordismiss.1 The agency ignored it and forced his hand. Fundamentally, Section 2302(b)(8) covers“any” disclosure evidencing “any violation of any law . . . .” (emphasis added). Additionally,under the statute, disclosures made in the “normal course of duties . . . shall not be excluded”under subsection (b)(8). 5 U.S.C. § 2302(f)(2) (added by the recent Whistleblower ProtectionEnhancement Act (WPEA)). Traditionally, the purpose of the WPA and specifically Section2308(b)(8) has been to “protect disclosures of ‘government wrongdoing’.” Arauz v. DOJ , 89M.S.P.R. 529, 533 (2001). However, the MSPB has also previously ruled that disclosures arecovered by Section 2302(b)(8) where “(1) the essence of those disclosures was that [a]government program under which the private organization was operating was being used tofacilitate wrongdoing, (2) if this alleged wrongdoing were allowed to continue, the agency could

1 As discussed infra, the Inspector General had a statutory duty to report this to the head of theagency and to Congress.



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be viewed as an accessory to the wrongdoing, and (3) the government’s interests and reputationtherefore were implicated in the alleged wrongdoing.” Id.

In this case, Mr. Lee’s disclosures internally and then subsequently to the media meet thevery definition of a lawful “disclosure” under the WPEA, because they involved the effects of

fraud by banks on Fannie Mae and Freddie Mac. Given that FHFA was (and currently still is)conservator of the GSEs, FHFA-OIG by association failed to properly oversee the financialhealth of the GSEs and to comply with its mandate to weed out illegality and fraud. The banks’ behavior of manipulating LIBOR had a direct effect on the financial health and stability of thesegovernment-backed mortgage enterprises, and consequently the pocketbooks of the taxpayer-funded Treasury.

Reasonable Belief

The Whistleblower Protection Act (WPA) prohibits any employee with theauthority to take, direct others to take, recommend, or approve any personnel

action from taking, failing to take, or threatening to take or fail to take, any personnel action because of the disclosure of information by an employee orapplicant for employment that the employee or applicant reasonably believes

evidences a violation of law, rule, or regulation, gross mismanagement, a gross

waste of funds, an abuse of authority, or a substantial and specific danger to

public health or safety. 5 U.S.C. § 2302(b)(8) (emphasis added).

Chambers, 116 M.S.P.R. at 25. The MSPB has also previously held that:

[T]o prove that his disclosure is protected, the appellant need only show that adisinterested observer with knowledge of the essential facts known to and readilyascertainable by him could reasonably conclude that: (1) the alleged conductoccurred; and (2) the alleged conduct evidences one of the categories ofwrongdoing identified in 5 U.S.C. § 2302(b)(8)(A).

Phillips v. Dept. of Interior , 2014 MSPB LEXIS 5607, **10-11.

It is abundantly clear that any prudent individual in Mr. Lee’s position, with the sameknowledge and skills he had, could sensibly draw the same conclusions and report his concernsin an effort to have them addressed. Mr. Lee’s colleagues and superiors at OIG initially reactedsomewhat favorably to his disclosures, allowing him to conduct meetings to help verify hisanalysis, and convening meetings among senior leadership to discuss the matter, only to engagein an effort to dumb down the results for inexplicable reasons. Additionally, interest from high-ranking members of Congress, such as Senators Grassley and Kirk, on top of the generally well-known legitimacy of the LIBOR scandal and its effects on the markets and the economy, furtherdemonstrates the reasonableness of Mr. Lee’s concerns. Mr. Lee was on to something, and areasonably prudent person in his position would have sought to fully disclose what he found to be illegalities, along with an abuse of authority and gross mismanagement that caused him to persist in his disclosures.



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Illegality

Under the WPEA, Section 2302(b)(8) protects any lawful disclosure of any illegality.Mr. Lee disclosed evidence of illegality to his superiors at OIG, as well as to FHFA and otheragencies. The LIBOR manipulation was a fraud perpetrated by the “big banks” on the global

markets. Its effects have been far ranging across the global economy, affecting both privatesector and public sector entities and interests. The GSEs suffered tremendous losses as a resultof this fraud, and American taxpayers had to foot the bill through the Treasury’s bailout ofFannie Mae and Freddie Mac. Thus, while LIBOR was already a well-known issue by this time,Mr. Lee made new and unique disclosures pertaining to the full scope of the fraud, plus its effecton entities for which his own agency was ultimately responsible through its conservatorship.

Furthermore, the OIG’s failure to fully notify mandatory audiences of Mr. Lee’s findingswas unlawful. Under the Inspector General Act of 1978, OIG management had a duty to keepCongress informed of Mr. Lee’s findings. Under § 5(d), the IG:

shall report immediately to the head of the establishment involved whenever theInspector General becomes aware of particularly serious or flagrant problems,abuses, or deficiencies relating to the administration of programs and operationsof such establishment. The head of the establishment shall transmit any suchreport to the appropriate committees or subcommittees of Congress within sevencalendar days, together with a report by the head of the establishment containingany comments such head deems appropriate.

5a U.S.C. § 5(d) (emphasis added); see also § 4(a)(5).

Through OIG’s mandate as the watchdog over FHFA, which itself was conservator ofFannie Mae and Freddie Mac in the aftermath of the economic collapse, this failure tocompletely disclose Mr. Lee’s findings of roughly $3 billion in losses to the GSEs clearlyconstituted a “particularly serious” and “flagrant” problem and deficiency. Mr. Lee had areasonable belief under the IG Act that his complete findings should have been forwarded toCongress. Additionally, the Act nonetheless states, under Section 5(e)(3), that “nothing in thissection or in any other provision of this act shall be construed to authorize or permit thewithholding of information from the Congress, or from any committee or subcommittee thereof.”

In spite of the Act’s emphasis on the importance of keeping legislators apprised ofserious concerns brought to the attention of an agency’s OIG, OIG failed to follow itsrequirements. Mr. Lee’s persistence in trying to disclose and convince his superiors to act on hisfindings took on the form of additional protected disclosures of illegality, because it exposed theIG’s failure to meet his responsibilities under the law. Intimidating and removing Mr. Lee wasthe convenient option to avoid such exposure. Additionally, along the same lines, OIG’s failureto report Mr. Lee’s complete findings to Congress is a violation of the long-standing LloydLaFollette Act, which prohibits interference with a federal employee’s communications withCongress. See 5 U.S.C. § 7211. Mr. Lee presented information that was appropriate fordisclosure to Congress under the law, and OIG refused to convey it.



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Abuse of Authority

An abuse of authority occurs where the agency or federal official’s arbitrary or capriciousactions or exercise of power, or actions not grounded in law, result in discrimination orfavoritism, or “adversely affect[] the rights of any person.” Wheeler v. Dept. of Veterans Affairs,

88 M.S.P.R. 236, 241 (2001) (quoting Ramos v. Dept. of Treasury, 72 M.S.P.R. 235, 241(1996)); see D’Elia v. Dept. of Treasury, 60 M.S.P.R. 226, 231-33 (1993). Here, FHFA-OIG’sfailure to notify Congress and follow up on Mr. Lee’s findings of billions in losses to theAmerican taxpayer showed favoritism toward the big banks that artificially manipulated andconsequently profited from the LIBOR rates, and discriminated against American taxpayers whowere unjustly robbed of their own money. Withholding the information also discriminatedagainst Congress, by obstructing the flow of information for informed oversight. Mr. Lee’scontinued efforts to make this information known also took on the character of exposing theagency leadership’s abuse of its authority in failing to timely and aggressively pursue this issuefor no justifiable reason.

Gross Mismanagement

Gross mismanagement occurs where arbitrary or capricious actions significantly interferewith the “efficient accomplishment of the agency mission” or in other words creates “asubstantial risk of significant adverse impact on an agency’s ability to accomplish its mission,”which in this case was to monitor FHFA as the conservator of mortgage giants Fannie andFreddie. Nafus v. Dept. of Army, 57 M.S.P.R. 386, 394 (1993) (citing , overruled in part on

other grounds (citation omitted); Schaeffer v. Dept. of Navy, 86 MSPR 606, 615 (2000),overruled on other grounds (citations omitted). Here FHFA-OIG’s failure to address the fullscope of the LIBOR losses at Mr. Lee’s urging was the epitome of gross mismanagement, giventhe FHFA’s mission “to ensure the Housing Government-sponsored Enterprises operate in a safeand sound manner so they serve as a reliable source of liquidity and funding for housing financeand community investment” (http://www.fhfa.gov/). FHFA-OIG’s mission is “to provideindependent and objective reporting to the FHFA Director, Congress, and the American peoplethrough its audit and investigative activities,” and to “promote the economy, efficiency, andeffectiveness of FHFA’s programs; to prevent and detect fraud, waste, and abuse in FHFA’s programs; and to seek sanctions and prosecutions against those who are responsible for suchfraud, waste, and abuse” (http://fhfaoig.gov/). OIG grossly abandoned its mission by exhibitingits own waste and abuse as it chose to cover up the fraud, waste and abuse related to investmentsmanaged by the GSEs under FHFA’s conservatorship. Mr. Lee’s persistent disclosuresthreatened to expose OIG’s gross mismanagement.

Gross Waste

An agency commits “gross waste” where there is a “more than debatable expenditure thatis significantly out of proportion to the benefit reasonably expected to accrue to thegovernment.” Nafus, 57 M.S.P.R. at 393. OIG at first permitted Mr. Lee to continue hisresearch into the then-potential LIBOR losses sustained by the GSEs, including sending him toconsult with outside experts in New York, as well as with government colleagues at FHFA, theGSEs, and the Department of Justice. Mr. Lee’s painstaking expert work led to a comprehensive

http://www.fhfa.gov/

http://www.fhfa.gov/



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report using verified methodologies that showed a disturbing $3 billion in losses sustained by theGSEs. Yet OIG failed to make forthright disclosures to Congress even in the face ofcongressional interest in that very information throughout 2012. By failing to do this, OIGeffectively wasted significant time and money through government salaries, travel and otherrelated expenses. In making his LIBOR loss disclosures internally and then externally, Mr. Lee

implicated this gross waste just as he did the abuse of authority and gross mismanagement. Toadd to this, the use of time and money by officials and agents in detaining and interrogating Mr.Lee for over six hours merely added to the amount of waste incurred by the government and inturn the taxpayers.

Knowledge

Mr. Lee consistently and repeatedly disclosed his findings on the GSEs’ LIBOR losses toOIG leadership, and also tried to make such disclosures to other agencies, such as the FederalReserve, and Department of Justice. It is indisputable that OIG, main FHFA, and others werewell aware of Mr. Lee’s disclosures as they were made in meetings, via email, during his

interrogation, and in more formal memoranda.

Nexus – Contributing Factor Test

An employee can establish a causal link between his or her protected activity and theadverse action by showing that his disclosures were at least a “contributing factor” to the adverseaction. This means it could be any factor, whether on its own or in combination with otherfactors, that influences the adverse action. See 135 Cong. Rec. 4509, 4518, 4522, 4533(Statements of Senators Grassley, Pryor, Representative Schroeder, and Joint ExplanatoryStatement). Mr. Lee’s disclosures were at a minimum a contributing factor to the agency’sunacceptable treatment of him, including his forced resignation, and it would be fair to view hisdisclosures as the central or even sole factor in the adverse actions taken against him.

Temporal Proximity/Knowledge-Timing Test

The contributing factor test can be met through circumstantial evidence whichdemonstrates that after the acting official acquires knowledge of the disclosure or protectedactivity, any prohibited personnel actions taken “within a period of time such that a reasonable person could conclude that the disclosure was a contributing factor in the personnel action,” canestablish this nexus. 5 U.S.C. § 1221(e)(1). Prior Board precedent shows that a personnel actionoccurring within one to two years of the protected activity is sufficient to meet this test. See

Schnell v. Dept. of Army, 114 M.S.P.R. 83, 93 (2010).

Here, the time between Mr. Lee’s initial disclosure of his findings of $3 billion in losses,through his continued attempts to push the IG to convey his full and complete findings toCongress, through the time of his disclosure to the media, and finally his forced resignation,amounted to mere months.

Motive





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was an oppressive, public humiliation – overkill that is evidence of retaliatory animus. The grossoverkill of the OIG’s reaction demonstrates its retaliatory animus.

Other Considerations

In addition to a motive to retaliate, other circumstantial evidence can include whether the proposing or deciding official was a target of the disclosures; the employer’s reaction to protected disclosures; discriminatory treatment compared to before making the disclosure; extentof disclosures; significance of the charges; strengths and weaknesses of the agency basis for a personnel action; adequacy of agency investigation and corrective action on alleged, confirmedmisconduct; and the chilling effect. See, e.g., Rumsey, 120 M.S.P.R. at 273; Valerino v.

Department of Health and Human Services, 7 M.S.P.R. 487, 489-90 (1981); Fellhoelter v. Dept.

Agriculture, 568 F. 3d 965, 971 (Fed. Cir. 2009); Daniels v. Department of Veterans Affairs, 105M.S.P.R. 248, 259 (2007); Stiles v. Department of Homeland Security, 116 M.S.P.R. 263, 273-74(2011); accord Sheehan v. Dept. of Navy, 240 F.3d 1009, 1014 (2001); Webster v. Dept. of the

Army, 911 F.2d 679, 689-90 (Fed. Cir. 1990).

Mr. Lee’s disclosures showed billions of dollars in losses calculated throughindependently verified methods, and his interrogation rested on his sharing his findings with amember of the media only after no one within OIG would completely address the matter, adisclosure itself which is still protected under the WPA (see discussion supra that a disclosurecan mean any type of disclosure). OIG verbally alleged an administrative violation by virtue ofMr. Lee’s contact with a member of the media, and nothing more. Rather than following a due process for his removal that would consist of a proposed notice and a Douglas Factors analysis,OIG agents detained, interrogated, intimidated, and forced Mr. Lee into an unlawful resignationagreement, all in the course of 6 to 6 1/2 hours.

Lack of Independent Justification

The agency can rebut the nexus/contributing factor argument, overcome a prima facie case, and avoid corrective action by demonstrating “clear and convincing evidence that it wouldhave taken ‘the same personnel action in the absence of’” Mr. Lee’s whistleblowing disclosures.Whitmore, 680 F.3d at 1367 (quoting 5 U.S.C. § 1221(e)(2)); see also McCarthy v. Int’l

Boundary & Water Comm., 116 M.S.P.R. 594, 618-19 (2011). The U.S. Supreme Court hasinstructed that “[t]he purpose of a standard of proof is to instruct the factfinder concerning thedegree of confidence our society thinks he should have in the correctness of factual conclusionsfor a particular type of adjudication.” California ex rel. Cooper v. Mitchell Bros. Santa Ana

Theater , 454 U.S. 90, 92-93 (1981). With this in mind, the “clear and convincing standard” isunderstood to be “reserved to protect particularly important interests in a limited number of civilcases.” Id. at 93. The WPA is one such statutory framework. As Congress stated, this burden:

is a high burden of proof for the Government to bear. . . . [It] comes into play onlyif the employee has established by a preponderance of the evidence that thewhistleblowing was a contributing factor in the action—in other words, that theagency action was ‘tainted.’ Second . . . [it] recognizes that when it comes to proving the basis for an agency’s decision, the agency controls most of the



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cards—the drafting of the documents supporting the decision, the testimony ofwitnesses who participated in the decision, and the records that could documentwhether similar personnel actions have been taken in other cases. In thesecircumstances, it is entirely appropriate that the agency bear a heavy burden to justify its actions.

Whitmore, 680 F.3d at 1367 (quoting 135 Cong. Rec. H747-48 (daily ed. Mar. 21, 1989). As theFederal Circuit observed in Whitmore, “there is no doubt that Congress considered it veryimportant that federal agencies be required to clearly and convincingly rebut a prima facie caseof whistleblower retaliation, especially given the evidentiary disadvantages that face removedwhistleblowers.” Id. Furthermore, “[e]vidence only clearly and convincingly supports aconclusion when it does so in the aggregate considering all the pertinent evidence in the record,and despite the evidence that fairly detracts from that conclusion.” Id. at 1368. This heightened burden is so crucial because the WPA protects the “important public benefit” of whistleblowingthat can so easily be subject to a “fear of retaliation.” Id.

The Board itself has also explained “clear and convincing evidence” as “that measure ordegree of proof that produces in the mind of the trier of fact a firm belief as to the allegationssought to be established; it is a higher standard than preponderant evidence.” McCarthy, 116M.S.P.R. at 619 (citing 5 C.F.R. § 1209.4(e)); see also Schneider v. Dept. of Homeland Security,98 M.S.P.R. 377, 387 (2005). To apply this standard, the Board looks to the Carr factors: “[1]the strength of the agency’s evidence in support of its personnel action; [2] the existence andstrength of any motive to retaliate on the part of the agency officials who were involved in thedecision; and [3] any evidence that the agency takes similar actions against employees who arenot whistleblowers but who are otherwise similarly situated.” Carr v. Social Security

Administration, 185 F.3d 1318, 1323 (Fed. Cir. 1999).

Demonstrating clear and convincing evidence that the agency had an independent justification to terminate Mr. Lee is virtually impossible here. OIG agents detained andinterrogated Mr. Lee specifically because of their suspicion that he disclosed his findings to themedia. Mr. Lee disclosed information gathered from public sources and using publicmethodologies, and did so only after OIG leadership failed to meet its responsibilities to act onthat information and disclose the complete findings to Congress. There is no other act or behavior alleged by OIG against Mr. Lee that could have justified his detention, interrogation,and forced resignation. As to the third Carr factor, OIG would clearly never have imposed “theexact same penalty in the absence of [Mr. Lee’s] protected disclosures. Whitmore, 380 F.3d at1374 (citing 5 U.S.C. § 1221(e)). And as discussed supra, and in line with the second Carr factor, OIG had a substantial motive to retaliate among other supporting factors.

Even more inconsistent with OIG’s conduct is how Mr. Lee had exceptional performanceevaluations during his time at OIG, including ratings of “Excellent” in both 2011 and 2012. See Lee Aff. Exhibit 22. Ironically, Richard Parker, whose name appears on Mr. Lee’s resignationdocument, also happens to be the individual who signed off on Mr. Lee’s “Excellent” appraisalin 2012 merely a couple of months prior to the detention and forced resignation. In other words,there was no prior history of negative performance evaluations or prior adverse administrative



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actions against Mr. Lee for behavior or performance that could have remotely justified in anyway OIG’s treatment of him on the day he was pushed out of the agency.

Threatened and Adverse Personnel Actions

General Counsel Bryan Saddler and FHFA agents conducted a personal attack on Mr.Lee when they detained him in a conference room for over six hours and interrogated himregarding the release of his memorandum on LIBOR losses of the GSEs to the media. When hewas allowed to leave the room to use the bathroom, armed agents escorted him past colleagues,as if to advertise Mr. Lee’s detention and interrogation to everyone around.

During the interrogation/investigation, Mr. Lee was accused of disclosing confidentialinformation in contravention of law, and was threatened with the search of his home and personal email and records. Agents told him that the only way to avoid such invasion of his privacy would be to sign a resignation letter that very day, which OIG had already drafted. Thisitself was a threatened termination, as the agents and management officials left him with no

choice but to acquiesce in the face of threatened unlawful searches. Mr. Lee either had to resignor face the prospect of having his personal records searched, including at his home. After a dayfull of harassment, embarrassment, and personal threats, Mr. Lee reluctantly signed theresignation letter.

Retaliatory Investigation

Retaliatory investigations due to protected disclosures made under Sections 2302(b)(8)and 2302(b)(9) can be challenged as “threatened” personnel actions. The 1994 legislative historyfor that provision highlights “retaliatory investigations, [and] threat of or referral for prosecution” to illustrate “threatened” personnel actions, because they are a prelude to or create a precondition for more conventional reprisals. The primary criterion for a prohibited threat is thatalleged harassment “is discriminatory, or could have a chilling effect on merit system duties andresponsibilities.” H.R. Rep. No. 103-79, at 15; 140 Cong. Rec. 29,353 (statement of Rep.McCloskey).

The Board has interpreted this legislative intent to include retaliatory investigations assources of prohibited personnel actions. “The Board will consider evidence regarding theconduct of an agency investigation when the investigation was so closely related to the personnelaction that it could have been a pretext for gathering evidence to retaliate against an employeefor whistleblowing activity.” Geyer v. Dept. of Justice, 70 M.S.P.R. 682, 688 (1996), aff’d 116F.3d 1497 (Fed. Cir. 1997) (citing Mongird v. Dept. of the Navy, 33 M.S.P.R. 504, 507 (1987)).In Russell v. Dept. of Justice, the Board explained:

When, as here, an investigation is so closely related to the personnel action that itcould have been a pretext for gathering evidence to retaliate, and the agency doesnot show by clear and convincing evidence that the evidence would have beengathered absent the protected disclosure, then the appellant will prevail on hisaffirmative defense of retaliation for whistleblowing. That the investigation itselfis conducted in a fair and impartial manner, or that certain acts of misconduct are



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discovered during the investigation, does not relieve an agency of its obligation todemonstrate by clear and convincing evidence that it would have taken the same personnel action in the absence of the protected disclosure. . . . To here holdotherwise would sanction the use of a purely retaliatory tool, selectiveinvestigations.

76 M.S.P.R. 317, 324-25 (1997) (citing 5 U.S.C. § 1221(e)(2)); accord Johnson v. Department

of Justice, 104 M.S.P.R. 624, 631 (2007).

It is abundantly clear from the facts asserted herein as well as in Mr. Lee’s affidavit thatOIG’s investigation of him occurred purely as a result of his protected disclosure. After twoweeks from the time of the publication of his memorandum in the Wall Street Journal, OIGagents, under the authority of OIG officials including the Inspector General himself, detainedMr. Lee. During approximately 6 to 6½ hours, OIG agents not only interrogated him regardingthe disclosure of his memorandum to the media, but proceeded to question him on completelyunrelated, irrelevant and benign matters, evidencing a deep animus manifested in its so-called

investigation of Mr. Lee. This investigation, which took all day and likely began before Mr. Leewas pulled into a conference room by seemingly armed agents, culminated in his forcedresignation.

Mr. Lee’s detention, interrogation, and forced resignation came in response to his urgingof OIG officials to disclose the $3 billion figure to Congress, and then disclosing that figure tothe Wall Street Journal when he realized that otherwise the quantification would be covered up.As stated supra, MSPB case law has stated repeatedly that “[o]ne who is perceived as awhistleblower is still entitled to the protections of the WPA.” Juffer v. U.S. Info. Agency, 80M.S.P.R. 81, 86 (1998); see also Jenson v. Dept. of Agriculture, 2007 M.S.P.B. 3, 15 (2007); Ziegler v. Veterans Affairs, 121 M.S.P.R. 384 (2014). These OIG officials could havereasonably perceived that Mr. Lee would next go to Congress himself, thus disclosing the figurewhile simultaneously showing his superiors’ collective failure to do so on their own. OIG’sseverely adverse actions against Mr. Lee were a collective effort to prevent this from happening.Thus these actions also amount to a violation of the Lloyd La Follette Act, which forbidsinterference with or denial of a federal employee’s communications with Congress. See 5 U.S.C.§ 7211. OIG’s actions were preemptively intended to keep Mr. Lee quiet.

Of tremendously significant note, OIG subsequently destroyed evidence related to itsinvestigation of Mr. Lee. In addition to the gag clauses preventing him from taking actionthrough any forum, including the MSPB or other administrative body (discussed infra), theresignation agreement Mr. Lee was forced to sign also stipulated that “[w]ithin 30 days . . . theOIG will destroy any documents related to the investigation of [Mr. Lee]” with the exception thatthe Office of Investigations may retain work papers. Lee Aff. Exhibit 13 § Third ¶ 2. Mr. Leesubsequently received an email from OIG on April 2, 2013 stating that OIG “destroyed anydocuments related to the investigation of [Mr. Lee] with the exception of work papers retained by FHFA-OIG’s Office of Investigations . . . .” Lee Aff. Exhibit 20. The destruction of anydocuments related to this investigation was plainly in violation of FHFA’s ComprehensiveRecords Schedule policy prescribing that “significant investigative and evaluative case records”for investigations conducted by OIG into employee wrongdoing or administrative actions, for



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example, were to be retained for 30 years and later transferred to the National Archives andRecords Administration, while just “significant investigative and evaluative case records” of thesame or similar type must be maintained for 15 years. See Lee Aff. Exhibit 21 (Item 7.2).2 Thusdestruction of any records not held by the Office of Investigations in this matter within meremonths was against policy, patently improper, and highly suspect.3

Constructive Termination

“A constructive adverse action arises when an agency’s conduct leaves an employee noalternative but for the employee, involuntarily, to impose the adverse action on himself orherself. . . . [A]lthough a resignation is ostensibly a voluntary separation from employment, it is possible that an employee can be coerced into resigning by actions of the employing agency. . . .[A] long line of cases has established that the Board’s jurisdiction extends to an involuntarilyimposed adverse action.” Garcia v. Dept. of Homeland Security, 437 F.3d 1322, 1324 (2006).Furthermore, “the MSPB possesses jurisdiction over an appeal filed by an employee who hasresigned or retired if . . . his or her resignation or retirement was involuntary and thus tantamount

to forced removal.” Shoaf v. Dept. of Agric., 260 F.3d 1336, 1340-41 (Fed. Cir. 2001).Resignations are presumed voluntary unless the employee can show “sufficient evidence” toestablish it as coerced. Id.

The Federal Circuit has adopted what is known as the Fruhauf Test, which is an objectivetest that considers the totality of the circumstances, and what a reasonable employee in similarcircumstances would have done, to determine if there was involuntary coercion by an agency.Christie v. United States, 518 F.2d 584, 587 (Ct. Cl. 1975); Shoaf , 260 F.3d at 1341-42. Anemployee must show: “(1) the agency effectively imposed the terms of the employee’sresignation or retirement; (2) the employee had no realistic alternative but to resign or retire; and(3) the employee’s resignation or retirement was the result of improper acts by the agency.”Shoaf , 260 F.3d at 1431; see also Fruhauf Sw. Garment Co. v. United States, 111 F. Supp. 945,951 (Ct. Cl. 1953).

OIG detained Mr. Lee for nearly an entire work day without the option to leave,effectively placing him under arrest, and presented him with a resignation agreement it drew upas his only possible way of getting out of that room. Mr. Lee’s only practical option was to sign

2 As discussed supra, the failure to notify Congress was gross waste, gross mismanagement andabuse of authority. The destruction of documents violated the law. Not only do we contend thatthese facts prove he engaged in protective activity, but that they require a referral under 5 U.S.C.1213(b) for investigation of the illegality and abuse of authority, and we request that the OSCorder that investigation.3 The Federal Circuit has found that where documents highly relevant to a matter before theMSPB have been destroyed by an agency, the Board should draw “adverse inferences against theagency with respect to the documents destroyed.” Kirkendall v. Dept. of the Army, 573 F.3d1318, 1327 (Fed. Cir. 2009). Notably, even the negligent destruction of such documents “can justify an adverse inference sanction for destruction of evidence,” thus that should also be thecase where the intentional destruction of evidence “is beyond doubt.” Id. (citing Natividad v.

Dept. of Agric., 5 M.S.P.R. 415, 418 (1981)).





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The OIG’s personnel action also violated 5 U.S.C. § 2302(b)(9), in that OIGconstructively terminated Mr. Lee for his disclosures of information to the Inspector General.Under 5 U.S.C. §§ 2302(b)(9)(C) and (f)(2) (added by the recent WPEA), performing job dutiesdoes not disqualify an employee from witness rights – in this case, Mr. Lee’s disclosures to theOIG leadership. In response to his disclosures, Mr. Lee suffered retaliation. See discussion

supra regarding subsection (b)(8) and violations of the IG Act.

4

UNLAWFUL GAG PROVISION

Section 2302(b)(13)

The WPEA bolstered the enumerated prohibited personnel practices by adding subsection(b)(13) under 5 U.S.C. § 2302. This newer provision prohibits gag provisions in any “policy,form, or agreement” that do not carry with them a clear statement that in signing an agreement,for example, the employee does not give up certain whistleblower rights or rights pertaining tocommunications with Congress, correspondence with an Inspector General regarding fraud,

waste, or abuse of the law or rules, as well as in other circumstances. The provision provides infull that an agency may not:

(b)(13) implement or enforce any nondisclosure policy, form, or agreement, ifsuch policy, form, or agreement does not contain the following statement: “These provisions are consistent with and do not supersede, conflict with, or otherwisealter the employee obligations, rights, or liabilities created by existing statute orExecutive order relating to (1) classified information, (2) communications toCongress, (3) the reporting to an Inspector General of a violation of any law, rule,or regulation, or mismanagement, a gross waste of funds, an abuse of authority, ora substantial and specific danger to public health or safety, or (4) any otherwhistleblower protection. The definitions, requirements, obligations, rights,sanctions, and liabilities created by controlling Executive orders and statutory provisions are incorporated into this agreement and are controlling.

The resignation agreement forced upon Mr. Lee expressly violates this provision of theWPEA.5 It states that Mr. Lee “will not publicly release or otherwise disseminate any further oradditional non-public official information following his resignation from the OIG, including but

4 Additionally, under the Inspector General Act of 1978, the Inspector General “may receive andinvestigate complaints or information from an employee of the establishment concerning the possible existence of an activity constituting a violation of law, rules, or regulations, ormismanagement, gross waste of funds, [or] abuse of authority.” 5a U.S.C. § 7(a). No employeewith the authority to do so shall take action “against any employee as a reprisal for making acomplaint or disclosing information to an Inspector General.” Id. § 7(c).5 Notably, the Special Counsel disseminated a memorandum later in 2013 to all executivedepartments and agencies reminding them to update non-disclosure agreements to conform tothis new provision of the WPEA that became effective in late 2012, and to contain a statement tothe effect that any non-disclosure provision shall not supersede the employee’s rights towhistleblower protection. To date, Mr. Lee has not received such notice from FHFA-OIG.



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not limited to any matter related to the OIG’s investigation of him.” Lee Aff. Exhibit 13 §Second ¶ 3. Additionally, in multiple paragraphs OIG effectively cancels any possible remediesfor Mr. Lee, such as through OSC or MSPB, which together amount to a further gag bythreatening him to keep him from instituting any proceedings in connection with hiswhistleblowing and his constructive termination. This violation also took on the character of a

reprisal action, because it had the effect of intimidating Mr. Lee into not pursuing action basedon his rights as a federal employee whistleblower, which the WPA and WPEA have expressly protected, and which OIG had as part of its mission to protect.

Furthermore, Mr. Lee persistently urged his superiors to disclose the full quantified andverified $3 billion damage amount to Congress, and those superiors could reasonably have perceived that his next step would have been to go to a committee or member of Congresssdirectly on his own. OIG suspected there could be an imminent congressional disclosure, andtook action to intimidate Mr. Lee through his detention and the threatened search of his personalfiles, coercing him into resigning his post. This, too, is reasonably perceived as a violation of theLloyd LaFollette Act, 5 U.S.C. § 7211, in that OIG took preemptive action to keep Mr. Lee from

going to Congress by effectively firing him and incorporating a blatantly improper and unlawfulset of gag provisions in the concocted resignation agreement. Such action also sought to restrictMr. Lee’s First Amendment right to continue to discuss the disclosures that served as the basis ofhis whistleblowing.

VIOLATION OF MERIT SYSTEM PRINCIPLES

5 U.S.C. § 2302(b)(12)

The OIG’s personnel action also violated prohibited personnel practices under 5 U.S.C. §2302(b)(12), and were unlawful under our Constitution. The watchdog agency’s activities insuppressing Mr. Lee’s findings, marginalizing him in his efforts to report them in accordancewith his responsibilities and the law, and forcing his resignation, grossly violated merit system principles enumerated under 5 U.S.C. § 2301, principally:

(4) All employees should maintain high standards of integrity, conduct, and concern forthe public interest.

(5) The Federal work force should be used efficiently and effectively.

(9) Employees should be protected against reprisal for the lawful disclosure ofinformation which the employees reasonably believe evidences –

(A) a violation of any law, rule, or regulation, or(B) mismanagement, a gross waste of funds, an abuse of authority, or a substantialand specific danger to public health or safety.

The timeline and actions of OIG laid out in this complaint demonstrate an expresscontempt for the merit system principles. OIG’s concealment of Mr. Lee’s findings andunwillingness to transmit them in full with the total estimated losses to the GSEs calls intoquestion its ability to look out for the public interest and to work effectively.



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The Lloyd LaFollette Act

As discussed supra, OIG’s refusal to allow Mr. Lee to include his preliminary findingsand the substantial $3 billion figure potentially violated the Lloyd LaFollette Act, which bans the

interference with or denial of a federal employee’s communications with Congress. OIG’sactions would therefore be a violation of merit principles. See 5 U.S.C. § 7211. OIG’s conductcertainly flies in the face of the intentions of Congress to appropriate taxpayer money for agencyoperations and employee salaries that are void of the suppression of whistleblowers. See Congressional Anti-Gag Statute, Consolidated Appropriations Act for FY 2014, H.R. 3547, TitleVII § 713.

Fourth Amendment and Bivens

Furthermore, as asserted supra, the detention of Mr. Lee and the threat to search his personal files was tantamount to a false imprisonment and a violation under Bivens v. Six

Unknown Named Agents, 403 U.S. 388 (1971), which prohibits unreasonable search and seizureof an individual by federal agents. Agents and officials detained Mr. Lee for nearly an entirework day, keeping him hours after he acknowledged having made his protected disclosure thatsupposedly triggered OIG’s need to detain him.

Fifth Amendment Due Process

Mr. Lee’s detention and interrogation for several hours also violated his Due Processrights. Mr. Lee was first not offered access to legal counsel, and then was later dissuaded fromseeking legal counsel. While federal employees typically are put through a process wherebytheir removal is proposed on the basis of a Douglas factors analysis, and the employee has aformal opportunity to respond within a certain period of time, in this case no such processoccurred. Rather, OIG agents detained Mr. Lee without any opportunity to leave, and onlyallowed him to visit the restroom under escort. This was a gross violation of his rights as afederal employee, and was completely void of due process.

First Amendment Free Speech

There was also a First Amendment violation in light of Mr. Lee’s speech-oriented act ofdisclosing his findings to the media after OIG would not disclose the complete analysis toCongress. Such circumstances bring Mr. Lee’s disclosure outside of the limitations of Garcetti

v. Ceballos. 547 U.S. 410 (2006). This is particularly so because under the WPEA, Mr. Lee’sdisclosures are valid even if made pursuant to his job duties, although in this scenario there isthe added layer that because superiors in management would not disclose the full scope of hisfindings, he had no choice but to do so himself.

The unlawful activity and adverse actions in this case demonstrate contempt for standardsof “integrity, conduct, and concern for the public interest.” It furthermore was an incrediblyinefficient and counterproductive use of the federal workforce. Finally OIG, as a watchdogmeant to ensure transparency and protection of the truth, instead exhibited severe reprisal against



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one of its own for simply fulfilling his responsibilities. Altogether this is a gross violation of themerit system principles.

The agency’s refusal to convey the full extent of Mr. Lee’s findings, its heinous treatmentof him as a loyal and dedicated public servant, and its conduct in destroying most of the evidence

as it has openly admitted and documented, furthermore necessitate a request for an OSCinvestigatory order under 5 U.S.C. § 1213.

REQUESTED RELIEF

Pursuant to 5 U.S.C. § 1214, Complainant Timothy Lee requests the following relief:

• Back pay plus interest;

• Reinstatement;

•

Compensatory damages for pain and suffering, mental anguish, emotional distress,damages related to loss of income, medical costs, loss of other benefits and costs incurredfrom loss of such benefits;

•

Examination and expungement of all records referencing Mr. Lee’s work on the LIBORlosses that are derogatory about his work or him personally, or could prejudice hisopportunities for future promotion or employment in any government agency or civilianindustry;

• Prohibition of any future FHFA-OIG statements referencing Mr. Lee’s work on the

LIBOR losses that are derogatory about his work or him personally, or could prejudicehis opportunities for future promotion or employment in any government agency orcivilian industry;

• Reasonable and customary attorney’s fees and legal expenses; and

• Any and all further relief that the Special Counsel deems fair and equitable.

DISCIPLINARY ACTION

The retaliation in this case is beyond extraordinary because it implicates OIG officials,employees and agents with high levels of responsibility to serve the public (IG Steve Linick,among others). Undoubtedly crucial to this mission is the respect and protection ofwhistleblowers who bring forth such relevant information. For example, earlier this year aHouse of Representatives committee sent multiple letters to the Inspector General of theCommerce Department regarding concerns over retaliation against whistleblowers. In one ofthose letters, the committee stated that its “expectations for Inspectors General go beyond simpleadherence to the law to a broader expectation that an IG will have a sense of justice, fair play and



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manifest an ethical bearing that inspires others to remain cognizant that we all serve the peopleand we are all servants of the law. When an IG cannot effectively serve as a watchdog due totheir own illegal conduct or lack of ethical grounding, that IG cannot maintain the trust andconfidence of the Congress, agency employees, or the public.” Lee Aff. Exhibit 23.

As the Inspector General of FHFA-OIG at the time of Mr. Lee’s disclosures and reprisal,and now as Inspector General at the State Department, Mr. Linick must be held to a higherstandard than other government managers. In fact, pursuant to his confirmation hearing to become IG at the State Department, Mr. Linick pledged to the Senate Foreign RelationsCommittee that he would “…ensure whistleblowers have a safe forum to voice grievances andare protected from retaliation; and aggressively protect taxpayer funds against fraud, waste, andabuse.” Lee Aff. Exhibit 17. He had and still has significant duties to follow the requirements ofthe IG Act, and to defend the merit system, which prohibits such acts of detention, interrogationand forced resignation of federal employees as reprisal for their whistleblowing. The MSPB hasalso recognized that law enforcement officers may be held to a higher standard with respect tothe conduct expected of them and the severity of the penalty invoked for failure to meet those

expectations. See Todd v. Dept. of Justice, 71 M.S.P.R. 326, 330 (1996).

Law enforcement officers, with their pistol magazines and handcuffs clearly visible,detained Mr. Lee, and along with other agency officials interrogated him, threatened him with asearch of his personal emails and files, and forced him into resigning, all without due process(among other constitutional concerns and merit system principle violations). Permitting andcondoning such behavior by actual Inspectors General and their staff members would have anobvious and immense chilling effect on whistleblowers that would threaten the overall meritsystem and integrity of the principles as laid out under 5 U.S.C. § 1201.

Such behavior in this case is unfortunately not only a one-time incident, but the latest in a pattern of misconduct. Certain individuals with a history of alleged misconduct directly relatedto their duties as federal officials were hired to help lead the agency’s supposed fight against“fraud, waste and abuse.” For example:

• Michael P. Stephens, who was FHFA-OIG Principal Deputy Inspector General when Mr.Lee was forced from federal service, and until now had served as Acting InspectorGeneral of the agency, was also previously Deputy Inspector General at the Departmentof Housing and Urban Development (HUD-OIG). On April 10, 2008, HUD-OIG wasfound liable for a $488,500 jury award in a matter stemming from a HUD-OIG staffmember’s complaints which included Mr. Stephens’ retaliatory and discriminatory personnel actions.

•

Bryan P. Saddler, FHFA-OIG Chief Counsel now and at the time of Mr. Lee’s forcedresignation, previously worked as HUD-OIG General Counsel. On February 6, 2009,HUD-OIG entered into a settlement for $275,000 regarding another HUD-OIG staffmember’s complaints of employment discrimination and retaliation for providingtestimony in another administrative discrimination matter. While no liability wasadmitted under the terms of the settlement, it is notable that Mr. Saddler was named asone of the three accused of retaliating and discriminating against the complainant.



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2014-10-31 - Timothy Lee - OSC Supporting Brief (Retaliation) - Final

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