- The Washington Times - Saturday, April 19, 2008


Former Fannie Mae chief Franklin Raines and two other top executives agreed to a $31.4 million settlement with the government over their roles in a 2004 accounting scandal.

Mr. Raines, former Fannie Chief Financial Officer Timothy Howard and former Controller Leanne Spencer were accused in a civil lawsuit in December 2006 of manipulating earnings over a six-year period at the D.C.-based company, the largest U.S. financier and guarantor of home mortgages.

Mr. Raines, a prominent Washington figure who was President Clinton’s budget director, is relinquishing company stock options, proceeds from stock sales and other benefits. His part of the settlement is worth $24.7 million.

The stock options were valued at $15.6 million at the time they were issued to Mr. Raines, allowing him to buy shares at $77.10 and higher. Fannie Mae shares have been battered by the turbulence in the housing market and traded yesterday at around $28 — making the options that Mr. Raines was returning of negligible value, people familiar with the settlement said.

Proceeds from Mr. Raines’ sale of his company stock, valued at $1.8 million, will be donated to programs that help homeowners facing foreclosure or other initiatives designed to boost homeownership. For Mr. Howard, stock sale proceeds of $200,000 will go to such programs.

“While I long ago accepted managerial accountability for any errors committed by subordinates while I was CEO, it is a very different matter to suggest that I was legally culpable in any way,” Mr. Raines said. “I was not. This settlement is not an acknowledgement of wrongdoing on my part, because I did not break any laws or rules while leading Fannie Mae. At most, this is an agreement to disagree.”

Mr. Howard is settling for a total $6.4 million, including stock options valued at $5.2 million when issued, and Mr. Spencer, $275,000.

The deal was announced by the Office of Federal Housing Enterprise Oversight, the agency that oversees Fannie Mae and Freddie Mac, the two big government-sponsored mortgage finance companies.

“OFHEO’s mission is to ensure that [Fannie and Freddie] operate in a safe and sound manner,” said the agency’s director, James B. Lockhart.

“That cannot occur without corporate management providing prudent and responsible leadership and setting the appropriate ethical and overall ‘tone at the top.’ ”

Fannie and Freddie both had multibillion-dollar accounting scandals that stunned Wall Street and brought record civil fines against them in settlements with the government.

The amounts that Mr. Raines, Mr. Howard and Mr. Spencer are paying under the settlement are far less than what the government was seeking when it sued them in December 2006. OFHEO sought fines of around $100 million against the three and restitution totaling more than $115 million in bonus money tied to an improper accounting scheme.

The regulators contended that Fannie Mae manipulated its accounting to reach quarterly earnings targets so that Mr. Raines, Mr. Howard, Mr. Spencer and other company executives could pocket hundreds of millions in bonuses from 1998 to 2004.

The three executives had disputed the charges and described them as politically motivated.

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