SEC sues former Freddie Mac and Fannie Mae executives for deceptionFeatured, Finance Sunday, December 18th, 2011
The Securities and Exchange Commission accused six former top executives of Freddie Mac and Fannie Mae of fraud, for misleading investors that the two lenders did not have massive exposure to subprime mortgages. Two lawsuits were filed at the U.S. District Court in Manhattan
One of the six former lenders’ executives is Richard F. Syron, former chief of the Boston Federal Reserve Bank and chief executive of Freddie Mac from 2003 to 2008.
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According to the charges, Syron and the other executives “knew and approved of misleading statements’’ that did not fully disclose their companies’ exposure in billions of dollars of risky mortgage loans. The government took control of the two companies after the collapse of the housing market in 2008.
According to the SEC’s enforcement division director Robert Khuzami, “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,’’ when actually, its subprime portfolio of $244 billion in mid-2008 was already 14 percent of its overall holdings.
Syron teaches and serves as a trustee at Boston College. He was in charge of the American Stock Exchange until it merged with NASDAQ. He was also an assistant to Federal Reserve chairman Paul Volcker in Washington, D.C.
The Freddie Mac officials named in the lawsuit were former executive vice president Donald J. Bisenius and former executive vice president and chief business officer Patricia L. Cook. Defendants who were from Fannie Mae were former executive vice president Thomas A. Lund, former chief risk officer Enrico Dallavecchia and former chief executive Daniel H. Mudd.
The SEC is trying to get financial penalties from the six defendants as well as court orders that will ban them from becoming officers or executives of public companies.
SEC’s move was applauded by housing activists who have called for action to make the executives of the two lending companies accountable for their role in the foreclosure crisis.