Fannie Mae Avoids Federal Prosecution
Mortgage finance giant Fannie Mae avoided criminal prosecution over its alleged multibillion-dollar accounting fraud.
The decision was announced Thursday by the government-sponsored company, which was created by Congress to pump money into the $8-trillion home mortgage market.
Federal prosecutors in Washington confirmed that they had shut down their investigation of Fannie Mae’s faulty accounting after two years. But the Securities and Exchange Commission still could bring civil actions against executives, including people no longer at Fannie Mae.
Regulators said the scheme included manipulations to reach quarterly earnings targets so Fannie Mae executives could pocket hundreds of millions of dollars in bonuses from 1998 to 2004. Also, the discovery of falsified signatures on company documents supporting those accounting transactions had raised the possibility of criminal activity, according to some experts and observers.
Washington-based Fannie Mae helps finance one of every five home loans in the United States and is the second-largest U.S. financial institution after Citigroup Inc.
Fannie Mae’s government-ordered restatement of its earnings is expected to be completed by year’s end and to reach $10 billion, among the highest totals in U.S. corporate history.
SEC Chairman Christopher Cox has cited “the many accounting failures that occurred at Fannie Mae, from books-and-records violations to fraud.”
Fannie Mae was fined a record $400 million in a civil settlement in May with the SEC and the Office of Federal Housing Enterprise Oversight over the accounting problems and alleged earnings manipulation.
The housing agency is reviewing potential administrative actions against former Fannie Mae executives, spokeswoman Stefanie Mullin said Thursday.
That could mean trying to force out executives or getting current or former executives to return some of their compensation, possibly taking the matter to court.
About 30 current and former executives and employees have been under review by the company for possible disciplinary action or termination. They include former Chairman and Chief Executive Franklin Raines, who was White House budget director under President Clinton, and former Chief Financial Officer Timothy Howard.
