Human Capital & Careers

Does Scandal Pay?

While Freddie Mac's former chief executive will get his severance benefits and stock awards, executives at other companies with accounting woes are...
Stephen TaubSeptember 22, 2004

Former Freddie Mac chief executive Leland Brendsel is getting his money, after all.

The mortgage giant said last Friday that, as a result of a recently issued order from the federal District Court of the District of Columbia, Freddie Mac has begun the process of unfreezing compensation and paying amounts due to the company’s former chairman and chief executive officer.

Since June 2003, Freddie Mac has complied with letters issued by the Office of Federal Housing Enterprise Oversight (OFHEO) that directed Freddie Mac to freeze the compensation payments to Brendsel.

The federal D.C. District Court, however, recently issued an order that preliminarily enjoins the freeze directive invoked in the June 2003 letters. “Freddie Mac can no longer treat OFHEO’s June 2003 letters as a valid and effective freeze directive with respect to Mr. Brendsel’s compensation,” the company said in a statement.

Judge Richard Leon ruled that the OFHEO exceeded its authority when it ordered the mortgage giant to withhold severance benefits and stock awards from Brendsel after he was forced out by the board of directors in June 2003, according to published reports.

Is the decision a blow to companies seeking to retrieve large sums paid to former executives who earned large bonuses when their companies were mired in accounting scandals or took in large severance packages after they were forced to leave embattled organizations?

Hardly. The mere fact that a government agency even tried to keep a former top executive from receiving this sum of money is a sign that interested parties are mad as hell and not going to pay it any longer —
if it’s in their power.

In fact, in recent months, former Dynegy CEO Chuck Watson had to settle for nearly $7 million less than the $28.7 million that the one-time energy company chief had been seeking as a result of an arbitration settlement.

Further, as part of an amended severance agreement, Douglas Daft, the former chairman and CEO of the Coca-Cola Co., agreed to forfeit 500,000 shares of restricted stock granted to him in November 2000. What’s more, he will forfeit one million shares of performance-based restricted stock.

Meanwhile, Nortel Networks, currently embroiled in an accounting scandal, recently fired 10 finance officials and announced that it would immediately seek repayment of about $10 million in bonuses that had been paid to them.

And Adelphia Communications is seeking repayment of $3.2 billion that it claims the founding Rigas family owes the bankrupt cable company.

Slowly, it seems, corporate executives are learning that accounting shenanigans and whopping exit compensation packages don’t necessarily mix.

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