SEC Charges Ex-Fannie Mae, Freddie Mac CEOs | WAMU 88.5 - American University Radio
Filed Under:

SEC Charges Ex-Fannie Mae, Freddie Mac CEOs

Play associated audio

The Securities and Exchange Commission is going after former top executives at Fannie Mae and Freddie Mac for allegedly committing securities fraud.

The mortgage giants had to be taken over by the government in 2008 and then propped up by taxpayers. The SEC says the officials misled investors about the firm's exposure to subprime mortgages.

Critics have accused the SEC of taking a perpetrator-free approach to the financial crisis, targeting corporate entities for wrongdoing instead of CEOs. But on Friday the SEC went to court and charged six former top executives, including former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron.

The charges allege that Mudd, Syron and the others misled investors by claiming that their companies had minimal holdings of subprime and other high-risk mortgages. Robert Khuzami, director of the SEC's Enforcement Division, said Freddie Mac made that claim in its annual report for 2006 when Syron was its CEO.

"In fact, the company had $141 billion of subprime exposure, representing 10 percent of its single-family portfolio as of Dec. 31, 2006," Khuzami said. By June 2008, Freddie's subprime exposure had grown to $244 billion.

Karen Petrou, of Federal Financial Analytics, says her company knew Fannie and Freddie were not disclosing all their subprime loans. "What we didn't know and what does surprise me is the magnitude of the differences. We knew they were wrong; we did not know they were howlingly wrong."

In Freddie Mac's case, she says, for a CEO not to know his company owned $244 billion in shaky mortgages would be equivalent to not knowing your company owned a major bank. Syron has not commented on the charges. But Petrou says the company's regulator, the Office of Federal Housing Enterprise Oversight, should have known, too.

"They didn't," she says. "That's appallingly clear, because if they had been effective regulators, we wouldn't have Fannie and Freddie in conservatorship costing the taxpayers $170-plus billion to date, and not counting the billions more to come."

The SEC's complaint against Daniel Mudd and the other Fannie Mae executives says they misrepresented the size of their firms' exposure to shaky mortgages, too. In 2007, the executives put the number at $4.8 billion, when it was really $43 billion, according to the SEC. Mudd's lawyer says his client "did not mislead anyone."

In a statement, Mudd said that the government-appointed executives who succeeded him had signed the same disclosures he did, but they're being held blameless so the government can sue individuals fired years ago.

Law professor John Coffee of Columbia University says the SEC should be congratulated for finally focusing on the wrongdoing of top executives.

"There needs to be individual corporate accountability on the part of these senior executives before we're going to get adequate deterrence and a greater chance of avoiding the next financial meltdown," he says.

Since this is a civil action, the executives will not have to go to jail if they're found guilty. They could have to pay financial penalties and be forced to return ill-gotten gains. Mudd and Syron made a total of more than $30 million between 2006 to 2008.

Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.

NPR

In A Remarkable Feat, 'Boyhood' Makes Time Visible

Boyhood is about a boy in Texas whose parents have separated. Filmed over 12 years, audiences watch him grow up — and his worldview evolve. The cumulative power of the movie is tremendous.
NPR

Spread Of Palm Oil Production Into Africa Threatens Great Apes

Palm oil growers are setting their sights on Africa as they amp up production. More than half of the land that's been set aside for plantations in Africa overlaps with ape habitats, researchers say.
WAMU 88.5

Democrats Push To Overturn Hobby Lobby Ruling

Virginia's Tim Kaine and other Democrats are trying to overturn the ruling with legislation they say will protect female workers.
NPR

Friday Feline Fun: A Ranking Of The Most Famous Internet Cats

Forget the Forbes Celebrity 100. This is the Friskies 50 — the new definitive guide of the most influential cats on the Internet. The list is based on a measure of the cats' social media reach.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.