The U.S. Securities and Exchange Commission’s lawsuit against three former Freddie Mac executives that arose from the mortgage meltdown has ended in a relatively modest settlement.
The executives, including CEO Richard Syron, were accused of misleading investors into believing Freddie Mac had far less exposure to risky subprime mortgages than it actually had. While Freddie Mac disclosed in 2007 and 2008 that it had $2 billion to $6 billion in subprime loans on its books, the SEC said the actual exposure was as high as $244 billion.
The case was one of the most significant post-financial meltdown enforcement actions. But under the settlement, Syron, former chief business officer Patricia Cook, and former vice president of credit policy Donald Bisenius will have to donate only $300,000 to an unrelated fund set up to reimburse Freddie Mac investors.
“This was one of the big cases to come out of the financial crisis. They accused CEOs of lying,” Peter Henning, a corporate law professor at Wayne State University in Detroit, told Bloomberg. “And now, it ends, with I guess you can say, a whimper.”
Henning suggested the government had a weak case and the settlement could have implications for a similar SEC suit that is pending against executives of Fannie Mae, including former CEO Daniel Mudd.
Freddie Mac lost more than $85 billion from 2008 to 2010, including more than $50 billion in 2008 alone. Both Freddie Mac and Fannie Mae were put into conservatorship by the federal government in 2008.
The SEC and other regulators have been criticized for not doing enough to hold individuals accountable for activities leading up to the financial crisis and mortgage meltdown. But Andrew Ceresney, the SEC’s enforcement director, said the agreement with the former Freddie Mac executives was “an appropriate resolution of the matter.”
As Fortune reports, the deal effectively bans Syron, Cook, and Bisenius from serving as CEOs or CFOs for 12 to 24 months. The three made no admission of liability.
Through his lawyer at Sidley Austin LLP, Syron said he was “relieved and gratified” by the settlement. Bisenius said the agreement “vindicates me completely.”