WASHINGTON, May 23, 2006
Fannie Mae Slammed With $400M Fine
Agency Report Claims Execs Amassed Millions, Manipulated Accounts
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(AP / CBS)
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Fannie Mae Chairman and CEO Franklin Raines defends his agency in an appearance before the House Financial Services Committee on Capitol Hill in this Oct. 6, 2004, photo. (AP)
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Fannie Mae said its board has read the report and is committed to making the changes required under the deal with the regulators.
"We are glad to resolve these matters. We have all learned some powerful lessons here about getting things right and about hubris and humility," Mudd said in a statement. "We are a much different company than before. But we also recognize that we have a long road ahead of us."
The accounting manipulation tied to executives' bonuses occurred from 1998 to 2004, according to the report, a much longer period than was previously known.
Regulators had earlier said that Fannie Mae in 1998 improperly put off accounting for $200 million in expenses to future periods so executives could collect $27 million in bonuses.
The manipulation "made a significant contribution" to the compensation of former chairman and chief executive Franklin Raines, which totaled more than $90 million from 1998 to 2003, the report says, including some $52 million directly tied to the company hitting earnings targets.
The agency first discovered in 2004 the accounting-rule violations and alleged earnings manipulation to meet Wall Street targets — disclosures that stunned the financial markets.
In December 2004, the SEC ordered Fannie Mae to restate its earnings back to 2001 — a correction expected to reach an estimated $11 billion. The Justice Department has been pursuing a criminal investigation.
Raines and former chief financial officer Timothy Howard were swept out of office by Fannie Mae's board in December 2004.
OFHEO levied a record $125 million fine in 2003 against Freddie Mac, Fannie Mae's smaller rival in the multitrillion-dollar home mortgage market, for misstating earnings — mostly underreporting them — by $5 billion for 2000-2002.
On Friday, Fannie Mae said it was replacing the chairman of its board's audit committee, a key position as the second-largest U.S. financial institution reworks its accounting and struggles to emerge from the scandal.
The company said the board had named accounting professor Dennis Beresford to replace audit committee chairman Thomas Gerrity.
©MMVI, CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
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