Freddie Mac paying $125 million civil fine to settle misconduct allegations
Wednesday, December 10th 2003, 12:00 am
By: News On 6
WASHINGTON (AP) _ Mortgage giant Freddie Mac has agreed to pay a $125 million civil fine to settle federal regulators' allegations of management misconduct and directors' complacency, blamed for the company's $5 billion understatement of earnings and the ouster of four top executives.
The Office of Federal Housing Enterprise Oversight, which supervises Freddie Mac and its larger rival Fannie Mae, also released Wednesday a critical report citing ``a pattern of inappropriate conduct and improper management of earnings'' at the company and even ``a disdain for appropriate disclosure standards'' among former executives.
The second-largest U.S. buyer of home mortgages ``disregarded accounting rules, internal controls, disclosure standards, and ultimately, the public trust in pursuit of steady earnings growth,'' the agency's report found.
Freddie Mac, a publicly traded corporation with $40 billion in annual revenues, has acknowledged understating its earnings by $5 billion for 2000-2002 to smooth out volatility in profits and uphold its image on Wall Street as a steady performer. In addition, the company last month acknowledged inflating 2001 earnings by nearly $1 billion and said it may not be able to complete its accounting for 2003 until next June.
The company did not admit to or deny wrongdoing in the settlement _ the first such fine in the agency's 10-year history. Freddie Mac also said it did not consent to any part of the agency's report.
``This settlement and the resulting reforms represent an important step toward the goal of restoring the full confidence of our investors and the public,'' said Freddie Mac Chairman Shaun O'Malley in a statement. ``The reforms to be implemented as part of today's settlement build upon and enhance the company's ongoing remediation program to address its accounting and disclosure weaknesses.''