Mortgage-market giant Freddie Mac announced on Monday that it had fired its president because he didn't fully cooperate with an internal review of the company's accounting, now being investigated by federal regulators.
In a surprise shakeup, the company said it had fired the president and chief operating officer, David Glenn, and that chairman and chief executive Leland Brendsel had resigned. Vaughn Clarke, the company's executive vice president and chief financial officer, also resigned.
Freddie Mac said it had dismissed Glenn "because of serious questions as to the timeliness and completeness of his cooperation and candor" with attorneys engaged in January by the board of directors' audit committee to review the accounting problems.
The company doesn't believe that fraud or criminal misconduct were involved, Freddie Mac's new chief executive officer and president, Gregory Parseghian, told shareholders, financial analysts and reporters in a conference call Monday.
Shares of the government-sponsored yet widely traded public company dropped 13 percent, or $7.87, to $52.00 each on the New York Stock Exchange.
In January, Freddie Mac restated its earnings for 2000-2002, after its new auditor recommended changes to its accounting policies to reflect higher earnings from the complex financial instruments called derivatives.
The federal agency that oversees Freddie Mac, the Office of Federal Housing Enterprise Oversight, is investigating the company's accounting. In a letter to the company over the weekend, agency Director Armando Falcon said he has "become increasingly concerned about evidence that has come to light of weakness in controls and personnel expertise in accounting areas and the disclosure of misconduct on the part of Freddie Mac employees."
Earlier this year, Federal Reserve Chairman Alan Greenspan expressed concern that Freddie Mac and its larger sister in the home mortgage market, Fannie Mae, may not have adequate capital and that many investors have the misperception that they are backed by the government.
The two, which are major players in the multibillion-dollar home mortgage market, were created by Congress to buy home loans from banks and other lenders to supply ready cash. They buy mortgages from lenders to keep in their portfolios and package others into securities for sale on Wall Street.
According to recent financial statements, Fannie Mae has $817 billion in mortgage debts and Freddie Mac holds $1.3 trillion. Together, their holdings represent about 35 percent of all outstanding mortgage debt.