SEC charges former CEOs of Fannie Mae and Freddie Mac with fraud
Friday, December 16, 2011
SEC charges former CEOs of Fannie Mae, Freddie Mac with
fraud
By: Associated Press Business Staff
WASHINGTON -- The Securities and Exchange Commission has brought
civil fraud charges against six former top executives at Fannie Mae
and Freddie Mac, saying they misled the government and taxpayers
about risky subprime mortgages the mortgage giants held during the
housing bust.
Those charged include the agencies' two former CEOs, Fannie's
Daniel Mudd and Freddie's Richard Syron. They are the
highest-profile individuals to be charged in connection with the
2008 financial crisis.
Mudd, 53, and Syron, 68, led the mortgage giants when the
housing bubble burst in late 2006 and 2007. The four other top
executives also worked for the companies during that time.
The case was filed in federal court in New York City.
In a statement released through his attorney, Mudd said the
lawsuit "should never have been brought" and said the government
reviewed and approved all of the company's financial
disclosures.
"Every piece of material data about loans held by Fannie Mae was
known to the United States government to the investing public,"
Mudd said. "The SEC is wrong, and I look forward to a court where
fairness and reason -- not politics -- is the standard for
justice."
Syron's lawyer couldn't be immediately reached for comment.
According to the lawsuit, Fannie told investors in 2007 that it
had roughly $4.8 billion worth of subprime loans on its books, or
just 0.2 percent of its portfolio. The SEC says that Fannie
actually had about $43 billion worth of products targeted to
borrowers with weak credit, or 11 percent of its holdings.
Mudd told a congressional panel in March 2007 that Fannie's
subprime business represented less than "2 percent of our book." He
also said the company held subprime mortgages "very carefully."
Freddie told investors in 2006 that it held between $2 billion
and $6 billion of subprime mortgages on its books. The SEC says its
holdings were actually closer to $141 billion, or 10 percent of its
portfolio in 2006, and $244 billion, or 14 percent, by 2008.
In a May 2007 speech in New York, he said Freddie had "basically
no subprime exposure," according to the suit.
"Fannie Mae and Freddie Mac executives told the world that their
subprime exposure was substantially smaller than it really was,"
said Robert Khuzami, SEC's enforcement director. "These material
misstatements occurred during a time of acute investor interest in
financial institutions' exposure to subprime loans, and misled the
market about the amount of risk."
Fannie and Freddie own or guarantee about half of U.S.
mortgages, or nearly 31 million loans. The Bush administration
seized control of the mortgage giants in September 2008.
So far, the companies have cost taxpayers almost $150 billion --
the largest bailout of the financial crisis. They could cost up to
$259 billion, according to its government regulator, the Federal
Housing Finance Administration.
The other executives charged were Fannie's Enrico Dallavecchia,
50, a former chief risk officer, and Thomas Lund, 53, a former
executive vice president; and Freddie's Patricia Cook, 58, a former
executive vice president and chief business officer, and Donald
Bisenius, 53, a former senior vice president.
Lund's lawyer, Thomas Levy, said in a statement that Lund "did
not mislead anyone." Lawyers for the other defendants declined to
comment Friday morning.