SEC Charges Former Fannie Mae And Freddie Mac Executives With Securities Fraud
The Securities and Exchange Commission has charged six former top executives of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud, alleging they knew of and approved misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans.
Fannie Mae and Freddie Mac each entered into a non-prosecution agreement with the SEC in which each company agreed to accept responsibility for its conduct and not dispute, contest, or contradict the contents of an agreed-upon Statement of Facts without admitting nor denying liability. Each also agreed to cooperate with the Commission’s litigation against the former executives.
In entering into these agreements, the SEC considered the unique set of circumstances presented by the companies’ current status, including the financial support provided to the companies by the U.S. Treasury, the role of the Federal Housing Finance Agency as conservator of each company, and the costs that may be imposed on U.S. taxpayers.
Three former Fannie Mae executives —former CEO Daniel H. Mudd, former Chief Risk Officer Enrico Dallavecchia, and former Executive Vice President of Fannie Mae’s Single Family Mortgage business, Thomas A. Lund— were named in the SEC’s complaint filed in U.S. District Court for the Southern District of New York.
they “told the world that their subprime exposure was substantially smaller than it really was. . . ” and “misled the market about the amount of risk on the company’s books.”
The SEC also charged three former Freddie Mac execs —former Chairman of the Board and CEO Richard F. Syron, former Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the Single Family Guarantee business, Donald J. Bisenius— in a separate complaint filed in the same court.
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, Director of the SEC’s Enforcement Division. “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 on the company’s books.”
Mr. Khuzami assured that “all individuals, regardless of rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”