Freddie Mac’s troubles have deepened this week as probing into its accounting and management practices continues.
Freddie, formally known as Federal Home Loan Mortgage Corp., announced sweeping management changes Monday morning. Soon after, the Washington Post reported that the company alleged specific behavior that led to its firing of president and chief operating officer David Glenn: Freddie alleges that Glenn “altered and ripped out pages of his notebooks before handing them to investigators looking into the company’s accounting practices.”
Other officers and board members also severed employment ties Monday, but the management turnover hasn’t stopped the scrutiny, which has intensified.
Wednesday’s Post is reporting that federal prosecutors have “opened a criminal investigation into alleged irregularities” at the McLean, Virginia-based secondary lender. The Post cites two government sources close to the probe, and reports that U.S. Attorney Paul J. McNulty is heading the investigation. The Post also reported that, according to a government official, investigators will be looking at possible violations of federal securities law.
In other news three separate firms have filed class-action lawsuits against Freddie. All three were filed in the United States District Court for the Southern District of New York and charge that the company and certain officials “violated the federal securities laws by issuing a series of materially false and misleading statements to the market throughout the Class Period which statements had the effect of artificially inflating the market price of the Company’s securities.”
People who acquired Freddie common stock between January 27, 2003 and June 9, 2003 are considered to be part of the class.
Freddie is a government-sponsored enterprise. Its financial soundness and stability is overseen by the Office of Federal Housing Enterprise Oversight (OFHEO). On Monday, OFHEO’s director, Armando Falcon, Jr., announced that the agency would be launching its own investigation into the restatement process as well as the allegations of employee misconduct.
According to the announcement, the special investigative team will be headed by Stephen Blumenthal, counsel to the director.
In a letter to Freddie’s board, Falcon expressed concern over compensation packages provided to ousted executives Glenn, chairman and chief executive officer Leland Brendsel, and chief financial officer Vaughn A. Clarke. Falcon told Freddie’s board that they would have to “provide an explanation to OFHEO of its rationale for the termination packages for three individuals in light of the circumstances surrounding their departure from Freddie Mac.” He also noted that the packages must have OFHEO approval.
