United States District Court, D. Minnesota
DAVID S. DOTY, District Judge.
This matter is before the court upon the appeal by the government of the January 7, 2015, order compelling disclosure and upon the objection by defendants to the January 9, 2015, report and recommendation. Based on a review of the file, record, and proceedings herein, and for the following reasons, the court affirms the order in part, overrules the objections, and adopts the report and recommendation in its entirety.
On July 9, 2014, defendants were indicted on eight counts of wire fraud and one count of conspiracy to commit wire fraud. ECF No. 1. The indictment alleges that defendants engaged in a scheme to defraud mortgage lenders from July 2006 to October 2007. Id . According to the indictment, defendants recruited buyers to apply for mortgage loans, promising that they would receive money in return after the transactions closed. Id . ¶¶ 8-9. Defendants then caused false documents to be submitted to lenders and concealed the kickback payments that they received from the fraudulently inflated loans. Id . ¶ 12.
The indictment contains the following materiality allegation, which relates to documents submitted to the lenders:
The false representations and concealed true facts were material to the mortgage lenders financing the transactions in that, among other things, they prevented them from calculating the true loan-to-value ratios, assessing the true equity stake of the buyers, and determining the true credit risk associated with the transactions.
Id. ¶ 17. The indictment lists eight wire transfers allegedly made from Washington Mutual Bank (WaMu) to companies run by defendants. Id . ¶ 20.
Defendants seek the disclosure of documents pertaining to a Department of Justice investigation into WaMu and other lenders acquired by JP Morgan Chase. That investigation led to a civil settlement (Settlement Agreement). See ECF No. 67-1. In the Settlement Agreement, WaMu admitted to the following:
WaMu did not disclose to securitization investors... the information from its internal reviews concerning instances of borrower fraud and misrepresentations regarding borrower credit, compliance, and property valuation, in the origination of loans, including as to loans that were sold into securitizations. WaMu also did not disclose to investors information regarding instances of fraudulent and/or poor underwriting by certain non-WaMu loan originators who sold loans to WaMu....
Id. at 32-33. Specifically, defendants request a report authored by Clayton Holdings, Inc., referenced in the Settlement Agreement, that defendants argue has exculpatory information regarding the Settlement Agreements' findings (Clayton Report). Defendants likewise request all information in the DOJ's possession discovered during its litigation against WaMu.
Defendants also seek the disclosure of witness statements made in preparation of a 2007 joint report between the DOJ and the Federal Trade Commission (DOJ-FTC Report). Defendants argue that these statements will show that the DOJ previously approved of "buyer rebates, " a practice that they claim is now challenged in the indictment. On January 7, 2015, the magistrate judge issued an order granting defendants' request in part. The order required disclosure of the Clayton Report and "[w]itness statements made in 2007 and possessed by the Department of Justice that buyer rebates were permitted and in fact aided the consumer." ECF No. 82, at 6.
In addition to the order compelling disclosure, the magistrate judge issued a report and recommendation on January 9, 2015. ECF No. 85. The magistrate judge recommended that the court deny defendant Rosensteel's motion to exclude evidence of a consent order entered into between Rosensteel and the Minnesota Department of Commerce (MN-DOC). The consent order was issued on August 24, 2009. ECF No. 95-1. The order revoked certain real estate licenses belonging to Rosensteel and his company Split Rock Realty, LLC. Id . The consent order found Rosensteel in violation of Minnesota statutes prohibiting untrustworthy, false, and deceptive practices. Id. at 3. The allegations included in the consent order closely parallel the indictment allegations, and they pertain to the same underlying fraud scheme. By signing the order, Rosensteel admitted that its factual statements were true. Id. at 5. The government now appeals the disclosure order, and Rosensteel objects to the report and recommendation.
I. Disclosure of ...