Risk Management

Federal Probes Aimed at Fannie, Freddie

Embattled, bailed-out mortgate lenders now are officially targeted by U.S. Attorney, SEC Enforcement staff.
Stephen TaubSeptember 29, 2008

Fannie Mae and Freddie Mac say they are officially targets of two federal investigations — one by the Securities and Exchange Commission Enforcement Division and one by the U.S. Attorney’s Office for the Southern District of New York.

The two mortgage companies, which were recently taken over by the U.S. government, said they received a federal grand jury subpoena from the U.S. Attorney, and that the staff of the SEC’s Enforcement Division also is conducting an inquiry and directing the companies to preserve documents.

Fannie said that the probes seek information about certain accounting, disclosure, and corporate governance matters. In connection with the investigations and inquiries, Fannie said it received a grand jury subpoena for documents from New York’s Southern District, and a request for preservation of documents related to the SEC staff inquiry.

Fannie added it expects to receive requests for documents from the staff of the SEC, as well. Freddie said the subpoena seeks documents relating to accounting, disclosure, and corporate governance matters dating back to Jan. 1, 2007. Freddie said it would cooperate with the probes.

The announcements come days after Freddie said that Anthony S. Piszel was fired as executive vice president and CFO. The mortgage company, which said that the termination came without cause, was a result of a determination by the director of the Federal Housing Finance Agency (FHFA), the successor federal agency to the recent merger of the Federal Housing Finance Board (FHFB) and the Office of Federal Housing Enterprise Oversight (OFHEO).

Freddie did add, though, that the FHFA director had determined that severance payments — including any post-termination salary, any annual bonus for 2008 and any further vesting of stock grants contained in Piszel’s employment agreement — would be considered “golden parachute” payments and should not be paid.

David B. Kellermann, Freddie’s senior vice president, corporate controller and principal accounting officer since 2006, was appointed interim CFO, effective immediately. Prior to serving as controller he served as senior vice president, business-area controller

Freddie also announced that all its credit management activities will be consolidated under a single new position, chief credit officer, reporting directly to CEO David M. Moffett. Raymond G. Romano, senior vice president, credit-risk oversight, will be the acting chief credit officer, reporting directly to Moffett, while the company conducts an external search.