- The Washington Times - Friday, September 28, 2007

Mortgage finance company Freddie Mac yesterday agreed to pay $50 million to settle Securities and Exchange Commission charges that it fraudulently misstated earnings over a four-year period.

Four former Freddie Mac executives settled negligent conduct charges by agreeing to pay a total of $515,000 in civil fines and to make restitution totaling $275,548. They are former President and Chief Operating Officer David Glenn, former Chief Financial Officer Vaughn Clarke, and former senior Vice Presidents Robert Dean and Nazir Dossani.

“We take these charges seriously, and that’s why the Freddie Mac of today is a very different company than the Freddie Mac of the past,” said Richard Syron, Freddie Mac’s chairman and chief executive.

Freddie Mac neither admitted nor denied wrongdoing in the accord but agreed to refrain from future violations of the securities laws.

An accounting scandal erupted at the government-sponsored company in June 2003 when it disclosed it misstated earnings by $5 billion — mostly underreporting — for 2000 to 2002 to smooth quarterly volatility in earnings and meet Wall Street expectations.

The company’s top executives — Mr. Glenn, Mr. Clarke and then the chairman and chief executive, Leland Brendsel — were ousted. The events shocked Wall Street, where Freddie Mac, the nation’s second-largest buyer and guarantor of home mortgages, long enjoyed a reputation as a steady performer and reliable corporate player.

The McLean company in 2003 paid a $125 million civil fine, then a record, in a settlement with the Office of Federal Housing Enterprise Oversight (OFHEO), which blamed management misconduct for the faulty accounting.

In September 2004, an equally stunning accounting scandal came to light at top mortgage finance company Fannie Mae. Regulators eventually imposed limits on the two companies’ multibillion-dollar mortgage debt holdings, which they have sought to have lifted as a way to provide cash to the mortgage market in the recent turmoil.

Fannie Mae was fined $400 million in May 2006 in a settlement with OFHEO and the SEC — one of the largest civil penalties ever in an accounting fraud case.

Fannie and Freddie were created by Congress to make mortgages affordable and pump cash into the market by buying blocks of home loans from lenders and bundling them into securities for sale to investors worldwide.

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