FHFA's Watt fights harassment claims as accuser goes public

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Top U.S. housing regulator Mel Watt is privately reassuring people close to him that he will keep his post as authorities investigate an employee's claims of sexual harassment. Now, his accuser is heightening the pressure — speaking out publicly for the first time.

In an interview with Bloomberg News, Simone Grimes said Watt, the head of Fannie Mae and Freddie Mac's regulator, repeatedly made unwanted advances over two years — and that she has recordings that help show he made "quid pro quo" offers to help her career.

Watt, the director of the Federal Housing Finance Agency, refused to promote Grimes or give her a raise after she rejected him, she said. Grimes also said the FHFA is mishandling a review of her allegations.

"The FHFA will go down in history as having written the book on how not to handle a case of sexual harassment in government," she said.

Watt, who has denied wrongdoing, has remained in his post amid ongoing investigations into the allegations. While Grimes made a confidential Equal Employment Opportunity complaint in May that is being examined by the U.S. Postal Service, she said she's now going public because she believes Watt abused his power and wants him held accountable. The Postal Service is involved because it was deemed to be independent of the FHFA.

Grimes' claims are also being scrutinized by the FHFA's inspector general's office and she questioned whether the official who runs the office, Laura Wertheimer, is capable of overseeing an adequate probe. Grimes said her concern stems from her belief that Wertheimer may be too deferential to Watt.

Watt, 72, declined to comment through an FHFA spokeswoman. A spokesman for the inspector general's office, speaking on behalf of Wertheimer, said previous investigations the unit has conducted show its work is unbiased.

"We stand by our work," said Leonard Depasquale, the spokesman. "No one can read our work and credibly suggest that we are not independent."

Watt, a Democrat, said he did nothing illegal when the harassment claims first became public last month, and suggested that the allegations were politically motivated. He also said he was confident he would be exonerated.

In recent weeks, Watt has privately told people close to him that he intends to fight back and that he has no intention of stepping down over the allegations before his term expires in January, according to people familiar with the matter who asked not to be named because the talks weren't public. Grimes' accusations are the only known sexual harassment claims made against Watt, who was appointed by former President Barack Obama.

Grimes' complaint has swirled around an agency that plays a crucial role in the U.S. housing system. As FHFA director, Watt leads a regulator that oversees the nation's two mortgage-finance giants and sets policies with sweeping implications for the roughly $5 trillion market for home loans.

Fannie and Freddie buy mortgages from lenders, package them into bonds and provide guarantees on the securities for investors. Some hedge funds and other investors that own Fannie and Freddie shares have been eager for Watt to step aside in hopes that a new FHFA chief picked by President Donald Trump will be more likely to back efforts to free the companies from the government control they've been under since the 2008 financial crisis.

Grimes, who serves as a special adviser at the FHFA, has provided evidence to Postal Service investigators, including taped conversations between her and Watt, as well as a list of witnesses privy to events, according to her lawyer, Diane Seltzer Torre. The controversy comes at a time of growing pressure by corporate and government leaders to address harassment claims, as underscored by the #MeToo movement.

"Recent events have shown that men in power often abuse that power regardless of their political affiliations," Grimes said. "The path that victims have to walk to get justice is still a long and painful road."

While Grimes wasn't named in initial press reports about the alleged harassment, her identity became public earlier this month when Wertheimer's office sought to legally compel her to provide complete, unedited documents and tapes. Grimes had previously provided partial transcripts to investigators.

"I did not choose to come forward publicly," Grimes said. "The FHFA office of the inspector general, under the leadership of Laura Wertheimer, disclosed my identity in a series of retaliatory moves designed to intimidate and bully me."

Grimes and her lawyer have declined to make copies of the tapes, transcripts or other documents available to Bloomberg. She also declined to comment on why she provided partial documents to investigators or whether she plans to make the full tapes available.

Politico first revealed the tapes existed last month, and provided details on what was in them by citing documents and partial transcripts. The transcripts included a purported 2016 discussion between Watt and Grimes in which he told her there was an attraction that needed to be explored so they could determine whether it might lead to a sexual relationship or a friendship, according to Politico. Grimes responded by trying to shut down the conversation, Politico reported.

It was a July 27 Politico article that first prompted Watt to issue a statement denying any inappropriate conduct.

In the Bloomberg interview, Grimes said the recordings provide evidence of how Watt offered to aid her career in return for a romantic relationship, though she declined to offer specifics on what the FHFA director told her. She said the entire episode shows how federal agencies and their leaders lack accountability.

"Now that the matter is public, it is an opportunity to shed light on the problems associated with having an independent agency with broad power and a lack of clear oversight," Grimes said. "The agency and its OIG lack independence."

It's not clear how soon the Postal Service and the FHFA inspector general's office will wrap up their investigations. Next month, a House panel will hold a hearing on oversight of the FHFA, and the sexual harassment claims could be a focus for lawmakers.

Bloomberg News
GSEs Sexual harassment GSE reform Mel Watt FHFA Fannie Mae Freddie Mac Women in Banking