The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against six former executives at Fannie Mae and Freddie Mac, including the GSEs former CEOs, alleging that they misled investors and the federal government over the risky nature of subprime loans, according to a report from Bloomberg.
Robert Khuzami, the director of the SEC’s Enforcement Division, said the lawsuit seeks to hold the executives accountable for their deceptions.
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Khuzami said, in a piece by Hill blogger Peter Schroeder. “All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”
In total, the complaint singles out the following executives: Richard Syron, the former CEO of Freddie; Daniel Mudd, the former CEO of Fannie; Enrico Dallavecchia, Fannie’s former chief risk officer; Thomas Lund, Fannie’s former executive vice president; Patricia Cook, Freddie’s former executive vice president; and finally, Donald Bisenius, a former senior vice president at Freddie.
“This action arises out of series of materially false and misleading public disclosures,” read the SEC’s complaint against Syron. And Bloomberg has dug up quotations that seem to verify the SEC’s assessment.
For instance, the article highlights April 2007 testimony from Mudd, where he told lawmakers that Fannie’s exposure to risky subprime loans “remains minimal, less than 2.5 percent of our book.” Syron, during the same hearing, made similar statements about Freddie, telling lawmakers the firm hadn’t “been heavily involved in subprime all along.”
This after, in a 2006 interview, Mudd not only admitted to expanding Fannie’s holdings in high-risk loans, but that any other strategy would be “counterproductive,” as he said to investors in March of 2006.
According to Bloomberg’s report, the SEC is seeking unspecified damages against the defendants, and the Fannie/Freddie entities are not named as defendants.
Mudd, who now works as CEO of Fortress Investment Group, was ousted from his position as CEO of Fannie when the GSEs were taken over by the government in September 2008. Since that initial takeover, the Treasury has provided between $141 and $151 billion in taxpayer funds to the firms.