Freddie Mac, the second-largest
source of U.S. mortgage financing, must pay a $125 million fine
for manipulating earnings for the past three years, the company’s
regulator said.
The Office of Federal Housing Enterprise Oversight, citing
“a pattern of inappropriate conduct and improper management of
earnings,” also recommended Freddie Mac’s growth be limited
until the government-chartered company starts filing certified
financial statements. The regulator, in a statement on its Web
site, didn’t specify how growth should be limited.
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The McLean, Va.-based company said last month that it
hid its earnings volatility from investors by under-reporting
income by $5 billion for 2000-2002. The restatement has prompted
the ouster of four senior executives whose pay incentives
contributed to “improper” accounting, the report said.
“The basic thing for Freddie is to stop being cute with the
accounting,” said Massachusetts Rep. Barney Frank, the
senior Democrat on the House Financial Services Committee that
oversees Freddie Mac and Fannie Mae. “It’s not clear that there
is a systemic problem there, it’s just that a couple of people
made some really stupid decisions.”
The Ofheo report for the first time places some blame for
the missteps on Freddie Mac’s board of directors. The board “did
not recognize red flags, failed to make reasonable inquiries of
management, or otherwise failed in its duty to follow up on
matters brought to its attention.”
More-frequent turnover of board members may have prevented
some of the mistakes, said the regulator, whose existence may be
in jeopardy amid criticism it didn’t notice wrongdoing over the
three-year period. Ofheo Director Armando Falcon has resigned,
and lawmakers have proposed moving oversight to the U.S. Treasury
Department from the Department of Housing and Urban Development.
Bloomberg News
