The federal government filed civil charges Monday against former Fannie Mae chief Franklin Raines and two other former top executives, accusing them of misconduct at the mortgage finance giant that cost shareholders billions of dollars.
The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae, said it was seeking fines and the return of millions in bonus money that the executives earned. The agency filed 101 charges against Raines, former Chief Financial Officer Timothy Howard and former Controller Leanne Spencer.
Raines and Howard were swept out of office two years ago amid a multibillion-dollar accounting debacle at the government-sponsored company, which finances one of every five home loans in the United States. Fannie Mae this month announced a long-awaited earnings restatement for 2001 through June 30, 2004, that erased $6.3 billion in profit.
The oversight agency said it was seeking civil fines of $100 million or more against the three former executives and restitution totaling more than $115 million in bonus money tied to an improper accounting scheme.
Attorneys for Raines, Howard and Spencer disputed the regulators' charges and said they were politically motivated. A lawyer for Raines called agency Director James B. Lockhart "a fatally biased regulator" and asked him in a letter to remove himself "immediately and completely from any further regulatory action affecting Mr. Raines."
Lockhart's true motivation in the charges, Raines' attorney, Kevin Downey, said, is to get Congress to enact legislation tightening the government reins on Fannie Mae and Freddie Mac, its smaller sibling in the $8-trillion home-mortgage market.
Raines, a prominent Washington figure who was budget director in the Clinton White House, led Fannie Mae -- with its legendary political clout, generosity in campaign contributions and lobbying savvy -- from 1999 until his ouster by the firm's board in 2004.
Lockhart said the charges "reveal how the individuals improperly manipulated earnings to maximize their bonuses, while knowingly neglecting accounting systems and internal controls, misapplying over 20 accounting principles, and misleading the regulator and the public."
The oversight agency in May issued a blistering report alleging a six-year accounting fraud at Washington-based Fannie Mae. The regulator said the scheme included manipulations to reach quarterly earnings targets from 1998 to 2004 so that executives could pocket hundreds of millions in bonuses tied to the targets.
The agency filed the "notice of charges" with the federal Office of Personnel Management, which will assign an administrative law judge to hear the case. The executives would have the right to appeal a final ruling.
Raines' total compensation from 1998 through 2004 was $91.1 million, including $52.6 million in bonuses. Howard earned $30.8 million during the period, including $16.8 million in bonuses; Spencer received $7.3 million, of which $3.5 million was bonus money.
Howard's attorney, Steven Salky, called the allegations against his client "a politically motivated attempt to rewrite history."
Spencer's lawyer, David Krakoff, said that her annual performance reviews for the six years she was controller "found her work was nothing short of outstanding."