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Saturday, May 18, 2024 | Back issues
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SEC Charges Six Former Mortgage Execs

WASHINGTON (CN) - The SEC today charged six former executives of Fannie Mae and Freddie Mac with securities fraud, claiming they knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans.

Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) entered nonprosecution agreements with the commission, and agreed not to contest a Statement of Facts, but without admitting liability.

Charged in separate complaints were Fannie Mae's for CEO Daniel Mudd, its former Chief Risk Officer Enrico Dallavecchia, and former Executive Vice President of Single Family Mortgages Thomas Lund.

Charged in the Freddie Mac complaint were former Chairman of the Board and CEO Richard Syron, former Executive Vice President and Chief Business Officer Patricia Cook and former Executive Vice President for Single Family Guarantee business Donald Bisenius.

The SEC seeks financial penalties, disgorgement of ill-gotten gains and injunctions against all six.

"The suit against the former Fannie Mae executives alleges they made misleading statements - or aided and abetted others - between December 2006 and August 2008. The former Freddie Mac executives are alleged to have made misleading statements - or aided and abetted others - between March 2007 and August 2008," the SEC said in a statement announcing the filing of the lawsuits.

The statement added: "In the complaint against the former Freddie Mac executives, the SEC alleged that they and Freddie Mac led investors to believe that the firm used a broad definition of subprime loans and was disclosing all of its Single-Family subprime loan exposure. Syron and Cook reinforced the misleading perception when they each publicly proclaimed that the Single Family business had 'basically no subprime exposure.' Unbeknown to investors, as of December 31, 2006, Freddie Mac's Single Family business was exposed to approximately $141 billion of loans internally referred to as 'subprime' or 'subprime like,' accounting for 10 percent of the portfolio, and grew to approximately $244 billion, or 14 percent of the portfolio, as of June 30, 2008."

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