A court-appointed judicial hearing officer who previously had said e-mails sent between New York Insurance Department officials showed bias regarding the restructuring of bond insurer MBIA Insurance Corp. last week reversed his decision.
The e-mails were expected to be entered as evidence in a lawsuit that was filed in June 2009 by a group of banks holding MBIA policies. The suit claims that the NYID-approved restructuring of MBIA Insurance that split the troubled bond insurer into two entities was fraudulent.
The policyholders also planned to use the e-mails to show the regulators were biased in favor of a division of MBIA that protected municipal bond policyholders at the expense of other policyholders.
The split resulted in one entity comprised of municipal bond policies — National Public Finance Guarantee Corp. — and left MBIA Insurance holding riskier policies, such as mortgage-backed securities.
In his latest decision filed June 23, referee John Bradley wrote the NYID had asserted that the e-mails were privileged information and "it is very clear to me that the state respondents' position is correct."
Bradley said: "After reviewing the documents that I previously listed in my decision and order dated June 3, 2011, I have concluded that none of them need to be produced by the state respondents to the petitioners."
Bradley said the NYID had asserted public interest privilege and attorney-client confidentiality privilege over the documents. It also cited insurance laws that allow regulating bodies to keep certain information confidential. The NYID further asserted that many of the documents don't meet the standards set forth for the production to be ordered. The standards include showing the e-mails contained statements that "preempted, or biased, or steered the department's decision" or attempted to do so, regarding the restructuring of MBIA Insurance into two entities.
In Bradley's June 3 document, he said he reviewed 1,630 pages of documents and found several statements that showed bias. The e-mails and documents reviewed by Bradley were sent between Jan. 1, 2009, and Feb. 28, 2009. They contain the terms "MBIA" or "transformation" and were sent between or among Jack Buchmiller, Eric Dinallo, Hampton Finer, Michael Moriarty, and Scott Fischer.
The department had until June 17 to try to assert privilege over some or all of the documents, or argue that the hearing officer made an error. They wrote a letter, dated June 17, asserting just that. The hearing officer then reviewed the documents again to make a final determination.
Last May, the New York State appeals court ruled that the department must hand over e-mails and documents regarding the restructuring of bond insurer MBIA Insurance Corp. At the time, associate Justice Leland DeGrasse wrote that the NYID could not appeal a state Supreme Court order to produce the e-mails as potential evidence in a lawsuit brought by a group of MBIA policyholders.
During the time of the original order for the hearing officer to search documents, a lawyer for the NYID, David Holgado, said the number of documents that show bias will be "zero," adding, "We don't believe there's any documents that will demonstrate bias."
Spokesmen for MBIA and the NYID declined to comment.
A lawyer for the policyholders said, "We are disappointed that the Insurance Department is fighting so hard to shield evidence from public view, just as the department allowed MBIA to engineer its $5 billion fraudulent restructuring in complete secrecy without giving policyholders any notice or opportunity to be heard. We look forward to presenting our case at trial."