The Securities and Exchange Commission (SEC) filed a flurry of lawsuits today against former executives of Fannie Mae and Freddie Mac for allegedly misleading investors about their exposure to subprime mortgages.
The suits, filed in Manhattan federal court against ex-execs, claimed the two government-sponsored firms misrepresented their exposure to subprime mortgages. The SEC alleged that senior executives of the Federal National Mortgage Association (Fannie Mae) also distorted information on “Alt-A” loans between December 2006 and August 2008, while the executives of Federal Home Loan Mortgage Corp. (Freddie Mac) made false statements between March 2007 and August 2008.
“This action arises out of a series of materially false and misleading public disclosures,” the SEC said in its complaint.
Former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron are named as defendants, along with Enrico Dallavecchia, former chief risk officer for Fannie Mae, Thomas Lund, former Fannie Mae executive vice president, Patricia Cook, ex-executive vice president of Freddie Mac and Donald Bisenius, Freddie Mac’s former senior vice president. The firms themselves are not named as defendants in the case.
In April 2007, Mudd said in a hearing that Fannie Mae’s exposure to subprime loans “remains minimal, less than 2.5 percent of our book.” Syron echoed Mudd at the same hearing, claiming Freddie Mac had not “been heavily involved in subprime all along.” However, the firms were seized by regulators 18 months later in September 2008 after losses caused by insufficient loans almost led to their bankruptcies.
After reaching civil nonprosecution pacts with the SEC, Fannie and Freddie will accept responsibility for their conduct and cooperate in the agency’s litigation against the former executives, which seeks unspecified damages.