Fannie Mae says it won't be prosecuted over accounting problems
Thursday, August 24th 2006, 12:57 pm
By: News On 6
WASHINGTON (AP) _ Fannie Mae, the government-sponsored mortgage lending giant, won't face criminal charges over its multibillion-dollar accounting irregularities, the U.S. attorney's office said Thursday after two years of investigation.
``We have informed them that we are declining all charges against the company,'' said Channing Phillips, spokesman for U.S. attorney Kenneth Wainstein.
He confirmed the news announced earlier Thursday by Fannie Mae, which helps finance one of every five home loans in the United States.
In May, the company was fined a record $400 million in a civil settlement with the Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight over accounting problems and what regulators said was earnings manipulation by the company. A report issued by OFHEO said Fannie Mae employees manipulated accounting to hit quarterly earnings targets so that senior executives could pocket hundreds of millions in bonuses from 1998 to 2004.
While it has reached a settlement with the company, the SEC still could bring civil actions against individual executives, with the burden of proof less stringent than in criminal prosecutions.
And OFHEO ``is currently reviewing potential civil and administrative actions against former executives of Fannie Mae,'' agency spokeswoman Stefanie Mullin said Thursday. James B. Lockhart, OFHEO's director, has said the agency will pursue some executives to recover bonus money they reaped in the accounting scheme _ if the company itself fails to do so.
Earlier this month, Fannie Mae said it hoped to complete a multibillion-dollar restatement of its 2004 earnings by the end of this year. The company has not filed an earnings statement since late 2004. The earnings correction is expected to reach some $10 billion.
The company acknowledged then _ after its independent auditor, KPMG, refused to sign off on its earnings report _ that some of its accounting practices didn't comply with generally accepted accounting principles.
By the end of 2004, Franklin Raines, who had been President Clinton's White House budget director, was forced out as Fannie Mae's chief executive, along with Timothy Howard, the lending giant's chief financial officer.
Justice Department officials have never publicly confirmed that any Fannie Mae executives were also under investigation in the case.
One knowledgeable Justice official said Thursday that it was not expected that any individuals would be charged. This individual requested anonymity because, while the investigation of the company has been closed, the overall investigation has not yet been officially closed.
Fannie Mae and No. 2 mortgage financer Freddie Mac were created by Congress to pump money into the $8 trillion home-mortgage market to keep interest rates low and make home ownership affordable for low- and moderate-income people. Freddie Mac has been emerging from its own accounting scandal, which surfaced in mid-2003.