3 for­mer Fred­die Mac ex­ecs set­tle SEC dis­clo­sures law­suit

The China Post - - WORLD BUSINESS -

A for­mer CEO and two for­mer top ex­ec­u­tives at mort­gage gi­ant Fred­die Mac have set­tled a gov­ern­ment law­suit. They were ac­cused of un­der­stat­ing the amounts of high-risk mort­gages that Fred­die held just be­fore the hous­ing bub­ble burst in 2007.

The Se­cu­ri­ties and Ex­change Com­mis­sion an­nounced the set­tle­ment late Tues­day with for­mer Fred­die CEO Richard Sy­ron; Pa­tri­cia Cook, an ex­ec­u­tive vice pres­i­dent and chief busi­ness of­fi­cer; and Don­ald Bise­nius, a se­nior vice pres­i­dent.

They agreed to dona­tions to a fund for Fred­die in­vestors of US$ 250,000 for Sy­ron, US$ 50,000 for Cook and US$10,000 for Bise­nius.

The gov­ern­ment res­cued Fred­die and larger sib­ling Fan­nie Mae in 2008 as they neared col­lapse af­ter in­cur­ring mas­sive losses on risky mort­gages. Tax­pay­ers spent about US$187 bil­lion to res­cue the two com­pa­nies, in­clud­ing US$71 bil­lion for Fred­die, based in McLean, Vir­ginia.

Since the gov­ern­ment takeover, a fed­eral reg­u­la­tor has con­trolled the com­pa­nies’ fi­nan­cial de­ci­sions. The grad­ual re­cov­ery of the hous­ing mar­ket has made the com­pa­nies prof­itable again, and they have fully re­paid the gov­ern­ment loans.

Fan­nie and Fred­die buy home loans from banks and other lenders, pack­age them into bonds with a guar­an­tee against de­fault and then sell them to in­vestors around the world. To­gether they own or guar­an­tee about half of all U.S. mort­gages, worth around US$5 tril­lion.

The SEC also sued for­mer Fan­nie CEO Daniel Mudd and two other for­mer Fan­nie ex­ec­u­tives. They have dis­puted the al­le­ga­tions.

Sy­ron and Mudd led the mort­gage gi­ants in 2007, when home prices be­gan to col­lapse.

Ac­cord­ing to the SEC, Fan­nie and Fred­die mis­rep­re­sented their ex­po­sure to mort­gages for bor­row­ers with weak credit in re­ports, speeches and con­gres­sional tes­ti­mony.

The SEC said Fred­die told in­vestors in late 2006 that it held be­tween US$2 bil­lion and US$6 bil­lion of sub­prime mort­gages on its books — but its ac­tual sub­prime hold­ings were ac­tu­ally closer to US$141 bil­lion, or 10 per­cent of its port­fo­lio in 2006, and US$244 bil­lion, or 14 per­cent, by 2008.

“I am deeply re­lieved and grat­i­fied by to­day’s an­nounce­ment that the long­stand­ing lit­i­ga­tion with the SEC has been re­solved,” Sy­ron said in a state­ment Tues­day. “It has been a long, tough road and I am happy for the op­por­tu­nity to move on with my life.”

Bise­nius said he was grat­i­fied that the SEC had agreed to end its case. “I look for­ward to fo­cus­ing on the fu­ture, in­clud­ing my ca­reer, and spend­ing time with fam­ily and friends,” he said.

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