The Securities and Exchange Commission announced Friday that it has charged six former executives from the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) with securities fraud. The companies have entered into a Non-Prosecution Agreement with the SEC, and also agreed to cooperate in SEC litigation against its former executives.
In an SEC complaint filed in U.S. District Court for the Southern District of New York, Daniel H. Mudd, former Fannie Mae CEO, Enrico Dallavecchia, former Fannie Mae chief risk officer and Thomas A. Lund, former executive vice president of Fannie Mae’s Single Family Mortgage business were charged with securities fraud; the SEC alleged that they knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans.
In a separate complaint filed in the same court, Richard F. Syron, Freddie Mac’s former chairman of the board and CEO, Patricia L. Cook, former Freddie Mac executive vice president and CBO, and Donald J. Bisenius, former Freddie Mac executive vice president for the Single Family Guarantee business were also charged.
Robert Khuzami (left), director of the SEC’s Enforcement Division, said in a statement, “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was. 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.”
He added, “All individuals, regardless of their 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.”
The SEC seeks financial penalties, disgorgement of ill-gotten gains with interest, permanent injunctive relief and officer and director bars against Mudd, Dallavecchia, Lund, Syron, Cook, and Bisenius. Both lawsuits allege that the former executives caused the federal mortgage firms to materially misstate their holdings of subprime mortgage loans in periodic and other filings with the commission, public statements, investor calls and media interviews.