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U.S. House Ethics Panel Takes No Action Against Waters

California U.S. Representative Maxine Waters was cleared by the House Ethics Committee of allegations that she helped get a government bailout for a struggling bank in which her husband owned stock.

The panel, which said at a Sept. 21 hearing that it was prepared to take no action against Waters, voted unanimously to exonerate her. The committee accepted the recommendation of its outside counsel, Washington lawyer Billy Martin, that there was not “clear and convincing evidence” of ethical wrongdoing.

Members “concluded that Representative Waters did not violate any House rule, law, regulation or other applicable standard of conduct,” the panel said in a report released today.

The decision boosts her chances of becoming the top Democrat on the House Financial Services Committee when the next Congress takes office in January. She is next in line by seniority following the retirement of Massachusetts Democrat Barney Frank to be the ranking member as well as to be chairman, in the event Democrats win control of the House.

In late 2009, the committee began investigating allegations that Waters, 74, brought discredit to the House by helping OneUnited Bank of Boston obtain $12 million from the Troubled Asset Relief Program. The allegations were referred to the panel by the Office of Congressional Ethics, an independent watchdog unit that started the probe.

Chief of Staff

The allegations weren’t revived after the newly elected Congress took office in 2011. Martin was initially hired to review alleged misconduct by ethics panel staff lawyers who resigned, according to the committee’s report. He then examined evidence against Waters and her chief of staff, Mikael Moore, to determine whether to reopen the investigation.

At the panel’s Sept. 21 hearing, Martin told the panel there was insufficient evidence that Waters or Moore broke House rules. Martin said there wasn’t “clear and convincing” evidence that Moore, who is Waters’s grandson, knowingly violated House rules by helping OneUnited get the government bailout.

Still, Martin said investigators were “troubled” by inconsistencies in Moore’s testimony that raise “substantial issues of credibility.” He recommended that the panel consider some type of move against Moore short of formal action.

The committee issued a letter of reproval to Moore, saying he brought discredit to the House and sought to use his official position for personal gain by helping OneUnited.

‘Dramatic Appearances’

Moore’s actions “created dramatic appearances of conflict with your employing member’s personal financial interests” and “violated your obligation to behave in a manner that reflects creditably on the House,” said the letter by the panel’s acting chairman, Virginia Republican Bob Goodlatte, and acting ranking member, Kentucky Democrat John Yarmuth.

The report disclosed that the lengthy legal battle with Waters may have been avoided but for incorrect advice from a former chief counsel.

The original investigative subcommittee was prepared in 2010 to simply criticize Waters for failing to supervise Moore, and to take no disciplinary action. Still, it issued a statement of violations after the committee’s chief counsel advised that the rules required such an action. The former chief counsel also predicted, incorrectly, that Waters wouldn’t contest such a finding, the report said.

‘Not Warranted’

“Contrary to the advice of the former chief counsel, it is inappropriate” to issue a statement of violations “where the committee concludes that disciplinary findings and sanctions are not warranted,” the panel said.

At the Sept. 21 hearing, panel members scoffed at Moore’s contention that he didn’t know that Waters’s husband, Sidney Williams, had a financial interest in the bank. Moore said he was helping other minority-owned banks get government help, not just OneUnited.

Representative Donna Edwards, a Maryland Democrat, told Moore his action “strains the notion of credibility that you didn’t know” about Waters’s indirect financial interest in the bank.

“It is clear that Ms. Waters knew that she had a conflict of interest,” Edwards said.

Martin said Waters should be exonerated because evidence shows that she “took the important step” of instructing Moore “not to specifically assist OneUnited.” The investigation found no “clear and convincing” evidence that she “failed to supervise her staff,” he said.

Henry Paulson

Martin also reviewed evidence that Waters called then- Treasury Secretary Henry Paulson to request a meeting on behalf of minority banks that were hurt by the government takeover of Fannie Mae and Freddie Mac.

The evidence showed that when Waters called Paulson, “she believed she was acting on behalf of all minority banks” in the National Bankers Association, a Washington-based trade group, Martin said.

Paulson didn’t attend a Sept. 9, 2008, meeting between Treasury officials and two OneUnited executives, according to committee documents.

OneUnited sought government assistance in September 2008 because it held “substantial investments” in Fannie Mae and Freddie Mac, according to the panel’s 2010 statement of alleged violations by Waters. Without a government financial rescue, OneUnited stock owned by Waters’s husband would have been worthless, the committee alleged.

Price Drop

The shares were valued at almost $352,000 in June 2008 and dropped to $175,000 four months later, after federal regulators placed Fannie Mae (FNMA) and Freddie Mac in a conservatorship, the committee said. OneUnited received $12 million from TARP, plus $17 million in private investment.

The investigation was delayed by allegations that two former staff lawyers improperly shared information about the Waters case with Republican members of the panel. Martin concluded that none of the panel’s members was biased by the leaks. Still, six members of the panel recused themselves from the case and six acting members were appointed to help oversee the Waters inquiry.

In today’s report, the panel chided the committee for fostering the “perception” that members and staff “were acting on a partisan basis.”

The committee “works best when, and demands that, members exercise their own independent and nonpartisan judgment,” according to the report. It “must operate on the principles of open, frank and nonpartisan communications.”

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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