Fannie & Freddie Execs charged with Fraud

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**Ouze**

SEC charges ex-Fannie, Freddie CEOs with fraud
By Msnbc.com staff and wire

Federal regulators have charged six former executives -- including former CEOs -- at mortgage giants Fannie Mae and Freddie Mac with securities fraud, alleging they misled investors about their exposure to risky subprime mortgage debt.
The Securities and Exchange Commission said it sued three former executives at Fannie Mae and three at Freddie Mac Friday. The civil charges were filed in two separate lawsuits in federal court in New York City. Among those charged were former Freddie Mac CEO Richard Syron and former Fannie Mae CEO Daniel Mudd.

"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. Khuzami added that these misstatements "misled the market about the amount of risk on the company's books."

The SEC said both firms have agreed to cooperate with the agency and have entered into non-prosecution agreements.

Freddie Mac and Fannie Mae have been propped up by about $169 billion in federal aid since they were rescued by the government in 2008. Fannie and Freddie own or guarantee about half of U.S. mortgages, or nearly 31 million loans.
The Associated Press said lawyers for Syron and Mudd couldn't be reached. But in a statement obtained by CNBC, Mudd said, "This is a lawsuit that should never have been brought in the United States of America. Every piece of material data about loans held by Fannie Mae was known to the United States government and to the investing public. The SEC is wrong, and I look forward to a court where fairness and reason — not politics — is the standard for justice."

The SEC said it is seeking financial penalties, disgorgement of ill-gotten gains with interest and to bar Syron, Mudd and the others charged from serving as directors on company boards.

The others charged include:
Fannie Mae - former Chief Risk Officer Enrico Dallavecchia and former Executive Vice President of its single family mortgage business, Thomas A. Lund.
Freddie Mac - former Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the Single Family Guarantee business Donald J. Bisenius.

Reuters and The Associated Press contributed to this report.

OK, help me with this. If I were to write a bad check for $169, I presume I could be charged with fraud and sent to jail. When these guys can fraud on a scale a million times larger, and the worst case scenario is penalties and not being able to be a director on a company board - the threat of going to jail, or even feth it, a criminial trial in front of a judge - those aren't even on the table. What is the rationale for this?

**SilverMK2**

Ouze wrote:What is the rationale for this?

The wealthy and powerful write the rules to ensure that they keep the wealth and the power?

**Jihadin**

Lack of will to throw them behind bars.

**Melissia**

Jihadin wrote:Lack of will to throw them behind bars.

Or more accurately, the people who are in power don't have the will to do so because they receive huge corporate donations to their political funds to ensure it doesn't happen.

**Jihadin**

Still figuring out how someone can lose a billon dollars...actually misplaced I'm guessing.

**filbert**

I'm sorry, I just have a hard time taking anyone seriously that works for a bank called Fannie Mae or Freddie Mac. The child in me sniggers when it's on the news...

**Kilkrazy**

I still don't understand where the billions of dollars went.

**Melissia**

Kilkrazy wrote:I still don't understand where the billions of dollars went.

They didn't go anywhere so much as they devalued to a very tiny fraction of their initial worth because of corporate stupidity.

Think of it like property values. Squiggoth takes a nasty dump on a hypothetical mansion you own, completely covering your home and filling your swimming pool, then you get infested with squigs, suddenly your mansion isn't worth much anymore.

Except instead of aggressive aliens, it was just stupidity.

**biccat**

Kilkrazy wrote:I still don't understand where the billions of dollars went.

Most of it was simply lost. When something doesn't command the value it used to, the difference doesn't actually go anywhere, it simply disappears. So if you bought your house for $200,000 and now it's only worth $150,000, then the extra $50,000 is lost. Economic growth works in the other direction.

Unless you're referring to John Corzine (former Senator, NJ Governor, and Obama financial adviser), because he actually did lose a billion dollars.

Melissia wrote:They didn't go anywhere so much as they devalued to a very tiny fraction of their initial worth because of corporate stupidity.

Um..., this is Freddie and Fannie. They're not exactly private-sector entities. Although I suppose they would fall under the broad umbrella of "Corporate," at least technically.

**Kilkrazy**

What I mean is that if you buy a house for £200,000, you had to pay £200,000 to the seller.

Even if the house value declined afterwards, the seller had the £200,000.

**SagesStone**

Maybe it went to trying to keep the company afloat?

**Kilkrazy**

If so, it was paid out to someone else.

**Easy E**

So, why only Freddie and Fannie? Is this the potential tip of a larger iceberg?

Secondly, haven;t several large banks all ready "settled" with the government to avoid future prosecutions over some of these Fraud issues? Does that mean their execs would be off the hook in the future?