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Severances assailed for Fannie, Freddie
Question of the Day
“The idea was to take away the incentive to engage in earnings mismanagement,” Ms. Fisch said.
Fannie Mae and Freddie Mac registered in 2003 and July of this year, respectively, with the Securities and Exchange Commission, making them subject to Sarbanes-Oxley.
In Mr. Raines’ case, the OFHEO accused him, along with Fannie Mae Chief Financial Officer J. Timothy Howard and Controller Leanne Spencer of altering earnings over six years, failing to uphold internal regulations and releasing misleading financial reports.
Mr. Howard - who collected $30.2 million in salary, stocks and bonuses over the past six years of his employment at Fannie Mae, according to OFHEO - was fined $6.4 million. Ms. Spencer, who made $7.3 million in her last six years as the company’s comptroller, was fined $275,000.
Steven Salky, Mr. Howard’s attorney, said in a statement at the time that the settlement was “a capitulation by OFHEO, reflecting that its concocted claims never had an ounce of merit.” He said Mr. Howard was “justifiably proud of his 23-year record of accomplishment at Fannie Mae.”
David S. Krakoff, attorney for Ms. Spencer, said his client “devoted herself to Fannie Mae’s mission of providing affordable housing to millions of Americans” for 15 years and was recognized as an “outstanding controller for Fannie Mae, where she conducted her duties with the highest integrity.”
Mr. Raines and others kept their pension plans and some stock options, although their stock was likely to be worth very little after the government conservatorship.
Freddie Mac, the Federal Home Loan Mortgage Corp., has faced scandals of its own.
Mr. Brendsel, who was the company’s chief executive officer from 1987 to 2003, made at least $7.4 million in 2002 alone, according to the company’s proxy documents. He brought in $33.1 million in his last six years at Freddie Mac, where he worked from 1985 to June 2003.
He was accused in 2003 of misconduct, allowing improper earnings management and failing to follow internal controls. The OFHEO wanted to fine him $33.9 million in losses, but Mr. Brendsel was fined just $13 million in 2007.
Kevin M. Downey, Mr. Brendsel’s attorney, said in a statement that while his client and OFHEO “disagree strongly about what happened in the past at Freddie Mac,” Mr. Brendsel agreed to a settlement because “it requires that most of the money paid will be used to assist families who are threatened with the loss of their homes in the current mortgage credit crisis.”
Mr. Downey noted that Mr. Brendsel “did not admit and specifically denies any liability in connection with the matters alleged by OFHEO.”
David Glenn, the company’s former president and chief operating officer, was fired in June 2003 for interfering with an accounting investigation. He told special counsel that he altered a spiral notebook of notes handed over in the investigation.
Mr. Glenn, who earned $18.4 million in his last five years at the company, agreed in late 2003 to pay a $125,000 fine and cooperate with the investigation. He was also denied about $13 million in severance pay.
“David Glenn has settled all matters with OFHEO, and in doing so and providing his full cooperation, continues to demonstrate his strong belief that, at all times, he acted properly and in the best interests of Freddie Mac and its shareholders,” Mr. Glenn’s attorney, Thomas Vartanian, said in a statement at the time.
About the Author
By Tom Harris and Madhav Khandekar
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