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Fannie Settles Fraud Charges for $400M.(Fannie Mae)
WASHINGTON -- Fannie Mae last week agreed to freeze the size of its mortgage portfolio and pay $400 million in fines after federal regulators formally accused the GSE and former executives of orchestrating a massive accounting fraud that lasted at least six years.
In a long-awaited and damning report, the Office of Federal Housing Enterprise Oversight slammed management for manipulating accounting rules to trigger hundreds of millions in bonuses for senior executives from 1998 to 2004.
The Department of Justice is conducting a criminal probe of the company's accounting practices. The report details what OFHEO calls "an arrogant and unethical corporate culture" at the $700 billion company. Acting OFHEO director James B. Lockhart harshly criticized the GSE, noting, "The image of Fannie Mae as one of the lowest-risk and 'best-in-class' institutions was a facade."
OFHEO says senior management at the company pulled out all the stops to meet earnings targets and secure "ill-gotten" bonuses. Internal controls were corrupted and accounting systems were allowed to deteriorate, the regulator charges.
The new report documents how Fannie even tried to disrupt and stonewall the regulator's probe by persuading a powerful senator to instigate an investigation of OFHEO.
"Our examination found an environment where ends justified means," said Mr. Lockhart. "Senior management manipulated accounting, reaped maximum, undeserved bonuses and prevented the rest of the world from knowing about it."
Securities and Exchange Commission chairman Christopher ...
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Source: HighBeam Research, Fannie Settles Fraud Charges for $400M.(Fannie Mae)