The Securities and Exchange Commission today charged six former top executives of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud, alleging they knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans.
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, Director of the SEC's Enforcement Division. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company's books.”
Three former Fannie Mae executives—past CEO Daniel H. Mudd, chief risk officer Enrico Dallavecchia, and Thomas A. Lund, EVP of Fannie Mae's Single Family Mortgage business—were named in the SEC's complaint filed in U.S. District Court for the Southern District of New York.
In a separate complaint, the SEC also charged three former Freddie Mac executives: past CEO Richard F. Syron, chief business officer Patricia L. Cook, and Donald J. Bisenius, EVP for the Single Family Guarantee business.
Fannie Mae and Freddie Mac each entered into a Non-Prosecution Agreement with the SEC and also agreed to cooperate with the litigation against the former executives.
“The SEC is seeking financial penalties, disgorgement of ill-gotten gains with interest, permanent injunctive relief and officer and director bars against Mudd, Dallavecchia, Lund, Syron, Cook, and Bisenius,” according to an SEC statement.
The suit against the former Fannie Mae executives alleges they made misleading statements—or aided and abetted others—between December 2006 and August 2008. The former Freddie Mac executives are alleged to have made misleading statements between March 2007 and August 2008.