Former Fannie Mae Chief Executive Officer Franklin Raines and two deputies agreed to a $31.4 million settlement with the government over allegations they inflated earnings at the largest U.S. mortgage-finance company.You may be wondering just how Franklin Raines isn't being indicted.We wonder the same thing.The magnitude of the accounting problems would land any other company on the Justice Department radar.Fannie Mae seems to be in a league of its own.Remember when Fannie didn't meet NYSE listing rules but was still listed on the exchange? Now we have an "accounting settlement".The lesson here is:contribute money to politicians in a big way.Those politicians determine the budgets of the regulators.Then when "accounting problems" happen,someone in the MSM will refer to you as
Raines is paying $24.7 million, including a $2 million penalty and the forfeiture of stock options, the Office of Federal Housing Enterprise Oversight said in a statement today. Former Chief Financial Officer Timothy Howard will surrender $6.4 million, and Leanne Spencer, who was the Washington-based company's controller, was fined $275,000.
The settlements, short of the $215 million in damages sought by Ofheo, ends more than a year of fighting with the executives over who was responsible for $6.3 billion in misstatements at the government-chartered company. Fannie Mae insurance will pay the $3 million cash portion of the settlements.
Ofheo sued Raines, 59, Howard, 58, and Spencer, 54, in December 2006, claiming they manipulated accounting in order to meet profit and bonus targets.
``Ofheo's mission is to ensure that the enterprises operate in a safe and sound manner,'' Ofheo Director James Lockhart said in the statement today. ``That cannot occur without corporate management providing prudent and responsible leadership and setting the appropriate ethical and overall `tone at the top.'''
Fannie Mae climbed 30 cents to $28.55 today in New York Stock Exchange composite trading. Freddie Mac rose 25 cents to $27.06. The two companies own or guarantee more than 40 percent of the $11.5 trillion in U.S. home loans outstanding.
Drag on Resources
Ofheo ``has always said their resources are stretched and this has been one of the drags on them,'' Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc., a Washington-based firm that provides advice to banks.
Raines will pay a $2 million fine to the federal government; relinquish claims on stock options valued at $15.6 million when they were issued; donate $1.8 million in proceeds from the sale of Fannie Mae stock to charitable programs that help struggling homeowners; and forfeit about $5.3 million in other benefits that Ofheo didn't disclose.
Raines was given stock options in 2000 through 2003 for 932,000 shares at exercise prices ranging from $69.43 to $80.95 a share. After he left, the shares never rose above $72 and now trade at less than $30, signaling any options he relinquished would be worthless.
`Denial of Allegations'
The consent order ``is consistent with my acceptance of accountability as the leader of Fannie Mae and with my strong denial of the allegations made against me,'' Raines said in a separate statement sent by e-mail today. ``This settlement is not an acknowledgement of wrongdoing on my part, because I did not break any laws or rules while leading Fannie Mae. At most, this is an agreement to disagree,'' he said.
Howard's $750,000 fine will be covered by insurance. He will surrender $5.2 million in stock options, donate $200,000 in proceeds from stock sales to charity and forfeit other benefits valued at $240,000, Ofheo said.
Ofheo had sought to impose more than $100 million in civil penalties and recover bonuses and other compensation exceeding $115 million, court documents show.
``The settlement is a capitulation by Ofheo, reflecting that its concocted claims never had an ounce of merit,'' Howard's attorney, Steven Salky of Zuckerman Spaeder, said in a statement.
Spencer also maintains that she acted properly while at Fannie Mae, according to a statement by her lawyer, David Krakoff at Mayer Brown Rowe and Maw LLP in Washington.
Stock Decline
Brian Faith, a Fannie Mae spokesman, declined to comment about the announcements. Current Fannie Mae CEO Daniel Mudd wasn't available to discuss the settlement, Faith said. Fannie Mae was fined $400 million by Ofheo and the Securities and Exchange Commission in 2006 because of the accounting errors.
Fannie Mae has tumbled 60 percent in New York Stock Exchange trading since Raines was ousted in 2004 as the company wrote down the value of mortgage assets amid a credit market slump. Fannie Mae is still under restrictions imposed by Ofheo after the overstatements under Raines, a Harvard-educated Rhodes Scholar.
Raines, a Harvard-educated Rhodes Scholar.
