- The Washington Times - Wednesday, October 13, 2010

Years before Fannie Mae foundered amid a massive accounting scandal, President Obama’s choice for national security adviser oversaw an office inside the mortgage giant that orchestrated a negative publicity blitz to fight attempts by Congress to increase government oversight, records show.

Thomas E. Donilon, who won the job as national security adviser this month, worked as a registered lobbyist for Fannie Mae from 1999 to 2005 at a time the company’s officials insisted finances were sound. He also earned more than $1.8 million in bonuses before the government took over the troubled company in the wake of an accounting scandal.

Vice President Joseph R. Biden Jr. and Mr. Obama, who railed against lobbyists on the campaign trail, hailed Mr. Donilon’s appointment last week, but made no mention of his time as a registered lobbyist.

Mr. Donilon’s work came under scrutiny in a 2006 report by the Office of Federal Housing Enterprise Oversight (OFHEO), which found that Fannie Mae lobbyists - working in an office overseen by Mr. Donilon - parlayed their ties to members of Congress to try to discredit federal regulators looking into the finances of the company.

“Thus, Fannie Mae succeeded in creating a large volume of negative publicity about the OFHEO examination report, in an effort to distract attention from its multibillion-dollar accounting errors,” the OFHEO report concluded.

In addition, the report noted that the publicity campaign, which included leaking nonpublic information, was conceived and executed by Fannie Mae’s government and industry relations department, but was still “well known” to Mr. Donilon and other senior executives.

Mr. Donilon was never accused of being complicit in accounting irregularities that prompted federal regulators to seek more than $100 million paid out to Fannie Mae’s former chairman and chief executive, Franklin D. Raines, along with two other executives.

Still, Mr. Donilon was sued in federal court and later dropped from a pair of shareholder lawsuits filed by retirement plans that accused Fannie Mae executives of earning millions of dollars in salary, bonuses and stock compensation based on improper financial results.

The Washington Times reported on Mr. Donilon’s ties to Fannie Mae in 2008, when he was named as an adviser to Mr. Obama’s presidential transition team.

At the time, Obama aides noted that as a former official at the State Department, Mr. Donilon was providing valuable input in foreign-affairs issues, but added that he would have no say in housing matters, given his previous work at Fannie Mae.

Officials also insist that Mr. Donilon’s Fannie Mae years ought not to overshadow a three-decade career during which, among other positions, he worked as an assistant secretary of state during the Clinton administration and as chief of staff to Secretary of State Warren Christopher. Mr. Donilon also served in the Carter administration.

White House spokesman Tommy Vietor on Tuesday said that as deputy national security adviser, Mr. Donilon did not require or receive an ethics waiver, nor does he require one in his new job.

In addition, Mr. Donilon divested all stockholdings in individual companies last year and did not require a waiver for remaining assets, consisting of mutual funds, cash accounts and assorted bonds, Mr. Vietor said.

Mr. Donilon reported earning $3,915,319.70 during 2008 and the first few weeks of 2009 in his previous job as a law partner at O’Melveny & Myers LLP, where his clients included Goldman Sachs and Citigroup.

In remarks at the White House on Oct. 8, Mr. Obama cited Mr. Donilon’s “probing intellect and a remarkable work ethic.”

“Tom has a wealth of experience that will serve him well in this new assignment,” said Mr. Obama. “He has served three presidents and been immersed in our national security for decades. Over the last two years, there is not a single critical national security issue that has not crossed Tom’s desk.

“He has helped manage our national security team and the policymaking process, and won the respect and admiration of his colleagues in the White House and across the administration,” he said.

Mr. Biden, calling Mr. Donilon a friend and adviser for nearly 25 years, said he and Mr. Obama are fortunate to be able to rely on Mr. Donilon’s “counsel and leadership.”

Mr. Donilon also has served at the Council on Foreign Relations and the Aspen Strategy Group, and has advised congressional leadership on national security issues. As a deputy at the White House, he’s been active in Asia policy, and among other overseas trips, he recently went to China with Mr. Obama’s top economic adviser, Lawrence H. Summers.

Still, Mr. Donilon’s Fannie Mae ties haven’t gone unnoticed. The day after Mr. Obama introduced Mr. Donilon as the new national security adviser, the Republican National Committee blasted out an e-mail noting that he made millions of dollars battling oversight of Fannie Mae.

According to the OFHEO report, which mentions Mr. Donilon’s name more than three dozen times, he received nearly $1.9 million in bonuses at Fannie Mae from 2001 to 2003. The report also notes that he and other executives scripted meetings of the Fannie Mae board’s compensation committee, which influenced how the meetings were conducted.

The collapse of Fannie Mae surfaced as an issue during Mr. Obama’s campaign against Republican Sen. John McCain, when both sides accused the other of having top advisers with ties to Fannie Mae.

Though Mr. Donilon previously worked as a lobbyist, he isn’t barred from taking a job in the Obama administration, nor does he require an ethics waiver, because he was last registered to lobby in 2005.