Mortgage Daily

Published On: August 19, 2004
SEC May Pursue Civil Charges Against Freddie

Wells Notice served

August 19, 2004

By MortgageDaily.com staff

In another blow to Freddie Mac’s tarnished image, the secondary lender announced that the Securities and Exchange Commission (SEC) may initiate a civil injunctive action against it for possible securities laws violations.

The McLean, Va., company, which was rocked last year by the revelation of an accounting scandal, released a statement saying SEC “staff is considering a recommendation that the SEC initiate a civil injunctive action against the company.”

Freddie attempted to create an image of “Steady Freddie” by reporting less than actual earnings in earlier periods with the intention of reporting the rest in subsequent periods when earnings would be lower. The disclosure of the scandal led to the ouster of several senior executives.

In yesterday’s announcement, the government sponsored housing enterprise said it received a Wells Notice from the SEC advising it about the staff recommendation seeking a permanent injunction and a civil money penalty.

The SEC often follows through with the recommendations in Wells Notices, but Freddie will have a chance to respond first.

“Freddie Mac has been cooperating with the SEC’s investigation and will continue to do so as we evaluate the manner in which we will respond to the receipt of the Wells Notice,” the statement said.

Related Coverage:

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Fannie and Freddie. What sounds like an aging Vaudeville act or the names of a widow’s twin poodles are actually the two most powerful forces in America’s home mortgage industry.

Can of Worms
Freddie Mac’s long-awaited financial restatement showed that in different periods through 2002, the mortgage giant underreported earnings by $5.0 billion. But, Freddie’s accounting woes aren’t over, as the company disclosed unexpectedly that it overstated income for 2001 and said it expects a volatile environment will ensue.

Criminal Probe, Class Action on Freddie’s Plate; X-Pres Accused of Ripping Pages From Notes
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Big Shakeup at Freddie
Freddie Mac fired president David Glenn Monday, amidst a flurry of executive rearrangements.

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