Freddie Mac Ex-CEO to Face Fines of $34 Million

The federal regulator of Freddie Mac said Thursday that it would seek $33.9 million in fines and forfeited severance and benefits from former Chief Executive Leland Brendsel for his role in the mortgage finance company’s manipulation of earnings.

The Office of Federal Housing Enterprise Oversight, known as Ofheo, also will seek $3.9 million from former Chief Financial Officer Vaughn Clarke, including returned compensation, penalties and restitution, the agency said.

A week ago the regulator, under fire for not detecting Freddie Mac’s accounting errors, ordered the company to pay a $125-million fine for earnings manipulation. Much of the blame rests with a few top executives, the regulator said in a report last week.

Freddie Mac, based in McLean, Va., last month said it hid the volatility of its earnings from investors by underreporting income by $5 billion for three years, beginning in 2000.

The restatement of those years’ results prompted the resignations of Brendsel, Clarke and two other senior executives whose pay incentives encouraged “improper” bookkeeping, the agency said.

Freddie Mac has withheld severance and other benefits from Brendsel and Clarke pending the end of Ofheo’s litigation.

Ofheo in September detailed a benefits package for Brendsel totaling $53.7 million, indicating that if Brendsel is required to submit to its charge, he would still gain $29.4 million in benefits from Freddie Mac. From that, he would then have to pay the company $3.8 million in restitution.

Brendsel’s lawyers, Brendan Sullivan and Lawrence Lorber, didn’t return calls. Clarke’s lawyer, Steve Salky, said the agency’s move was unfair.

“Vaughn Clarke served Freddie Mac in utmost good faith,” Salky said in a statement. “Freddie Mac entered into a series of severance agreements during 2002 and early 2003 that Ofheo approved with full knowledge of his conduct. Their effort to terminate the agreement is unjust.”