Fannie Mae to Pay Large Fine in Settlement
Embattled mortgage giant Fannie Mae is being fined between $300 million and $500 million for the alleged manipulation of accounting so that executives could collect millions in bonuses, according to a person familiar with the settlement . The deal with the Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission was being announced Tuesday as the government-sponsored company struggles to emerge from an $11 billion accounting scandal.
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Fannie Mae to Pay Large Fine in Settlement
Source: Associated Press/AP Online
Publication date: 2006-05-23
By MARCY GORDON
WASHINGTON - Embattled mortgage giant Fannie Mae is being fined between $300 million and $500 million for the alleged manipulation of accounting so that executives could collect millions in bonuses, according to a person familiar with the settlement . The deal with the Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission was being announced Tuesday as the government-sponsored company struggles to emerge from an $11 billion accounting scandal. The housing oversight agency was issuing the results of its extensive, three-year investigation of Fannie Mae, an assessment that is widely expected to be sharply critical and to touch on areas not addressed in a previous report ordered by the company's board of directors. Those areas include the role of Fannie Mae's board and some executives still at the company in the accounting debacle, according to two individuals familiar with the report, who spoke Monday on condition of anonymity because it had not yet been made public. The regulators are expected to recommend that the company review the executives' actions with an eye to possibly firing or disciplining them, they said. One of the individuals confirmed the anticipated civil fine against Washington-based Fannie Mae, the largest buyer and guarantor of home mortgages in the country, which was first reported Monday evening by The Wall Street Journal Online. Officials of the company and the two federal agencies declined to comment in advance of the announcement. According to regulators, Fannie Mae in 1998 improperly put off accounting for $200 million in expenses to future periods so executives could collect $27 million in bonuses. "By deliberately and intentionally manipulating accounting to hit earnings targets, senior management was able to maximize their bonuses," the new report by OFHEO says, according to an individual who has seen it. The report also is said to conclude that Fannie Mae's board failed in its oversight responsibilities and to maintain its independence from the company's former chairman and chief executive, prominent Washington figure Franklin Raines. Documents cited in a report released earlier this year show that top-level management was focused on the $200 million deferral and meeting earnings targets that would trigger the payment of full bonuses. OFHEO spokeswoman Stefanie Mullin and SEC spokesman John Nester declined comment Monday. Spokesmen for Fannie Mae couldn't be reached for comment. Fannie Mae employees falsified signatures on accounting transactions that helped the company meet the 1998 earnings targets, according to congressional testimony by the former director of OFHEO. The agency first discovered in 2004 the accounting-rule violations and alleged earnings manipulation by Fannie Mae to meet Wall Street targets - disclosures that stunned the financial markets. In December 2004, the SEC ordered Fannie Mae to restate its earnings back to 2001 - a correction expected to reach an estimated $11 billion. The Justice Department has been pursuing a criminal investigation. Raines and former chief financial officer Timothy Howard were swept out of office by Fannie Mae's board in December 2004. OFHEO levied a record $125 million fine in 2003 against Freddie Mac, Fannie Mae's smaller rival in the multitrillion-dollar home mortgage market, for misstating earnings - mostly underreporting them - by $5 billion for 2000-2002. On Friday, Fannie Mae said it was replacing the chairman of its board's audit committee, a key position as the second-largest U.S. financial institution reworks its accounting and struggles to emerge from the scandal. The company said the board had named accounting professor Dennis Beresford to replace audit committee chairman Thomas Gerrity. -- On the Net: Fannie Mae: http://www.fanniemae.com Freddie Mac: http://www.freddiemac.com Office of Federal Housing Enterprise Oversight: http://www.ofheo.gov Securities and Exchange Commission: http://www.sec.gov |
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