Accountability! SEC Charges Former Executives at Fannie Mae and Freddie Mac with Fraud Related to Subprime Mortgages
The Securities and Exchange Commission (SEC) just announced securities fraud charges against six former executives of Fannie Mae and Freddie Mac. The SEC alleges that Fannie and Freddie intentionally misled investors into believing that the company was less involved with riskier, or subprime, mortgages than was actually true.
According to Court House News:
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.
According to court documents, "This action arises out of a series of materially false and misleading public disclosures by the Federal National Mortgage Association ("Fannie Mae" or the "Company")." Between December of 2006 and August of 2008, the case alleges, those charged "made or substantially assisted others in making materially false and misleading statements regarding Fannie Ma e ' s exposure to subprime and Alt-A loans."
It cites the following example:
For example, in a February 2007 public filing, Fannie Mae described subprime loans as loans "made to borrowers with weaker credit histories" and reported that 0.2%, or approximately $4.8 billion, of its Single Family credit book of business as of December 31, 2006, consisted of subprime mortgage loans or structured Fannie Mae Mortgage Backed Securities ("MBS") backed by subprime mortgage loans.
According to the SEC statement,
"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."
Finally, we are holding the greedy thieves who wrecked the economy accountable for the disasters they created. I wonder what Occupy Wall St. might have to do with that?