Freddie Mac Backs CEO Amid Probe

Freddie Mac executives massaged earnings and breached accounting principles, an independent report said, but the mortgage finance company’s board Wednesday backed its new chief executive despite his knowledge of the transactions at the time.

CEO Greg Parseghian was Freddie Mac’s former chief investment officer and replaced Leland Brendsel in June as the accounting scandal became public. He had signed off on transactions that Freddie Mac now acknowledges were designed to defer earnings, said James Doty, a former general counsel of the Securities and Exchange Commission who conducted the report, released Wednesday, for Freddie Mac’s board.

Parseghian was told by company and external accountants at the time of the transactions that they were legitimate, Doty said.

“We believe he relied in good faith on corporate accounting and/or Arthur Andersen to provide the necessary accounting advice and to ensure the transactions were accounted for in accordance” with generally accepted accounting principles, he said.

Parseghian has cooperated fully with the board’s inquiry into questionable accounting, the lawyer said.

Doty’s report, commissioned after anonymous letters were sent to Franklin Raines, chief executive of mortgage finance rival Fannie Mae, blames previous management for past accounting problems and lapses in internal controls and disclosure.

Markets appeared indifferent to the news. The company’s stock rose 60 cents to $51.69 on the New York Stock Exchange.