SIX FORMER top executives at Fannie Mae and Freddie Mac have been charged with securities fraud in a civil case brought by the US Securities and Exchange Commission for allegedly misleading investors.
The chiefs are some of the most senior financial executives yet to be accused of wrongdoing in the financial crisis.
The accused executives at the mortgage finance companies include Daniel Mudd, who served as Fannie chief executive from 2004 to 2008, and Richard Syron, a former Freddie chief executive.They were accused of significantly understating Fannie and Freddie’s holdings of high-risk home loans. Those loans eventually soured, leading to a government bailout that could cost US taxpayers $193 billion (€1148 billion) through 2014, excluding dividend payments, according to the Federal Housing Finance Agency.
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, SEC enforcement director. He said that these “material misstatements” misled the market about the risk held on the company’s books “during a time of acute investor interest in financial institutions’ exposure to subprime loans.”
From 2006 to 2008, Freddie Mac said that its subprime exposure was no more than $2 billion to $6 billion when its actual exposure was between $141 billion to $244 billion, Mr Khuzami said.
Others charged include Freddie’s former chief business officer, Patrick Cook, and its head of single-family loans, Donald Bisenius. Fannie’s former chief risk officer, Enrico Dallavecchia, and former chief of single-family loans, Thomas Lund, are also accused.
The SEC agreed not to bring charges against the companies, now owned by US taxpayers. The companies neither admitted nor denied liability, though they agreed to “accept responsibility” for their conduct.
Fannie and Freddie also agreed to help the SEC in their suits against the former executives. – (Copyright 2011 The Financial Times Limited)
