WASHINGTON — Freddie Mac will pay a $50 million penalty as part of a long-awaited settlement with the Securities and Exchange Commission regarding allegations of earnings management and accounting fraud at the federal mortgage giant.
Freddie, formally known as the Federal Home Loan Mortgage Corp., settled without admitting or denying the SEC's claims that it deceived investors about its performance over a period of years, smoothing earnings to portray itself as "Steady Freddie." The SEC said the $50 million fine will be distributed to injured investors.
"As has been seen in so many cases, Freddie Mac's departure from proper accounting practices was the result of a corporate culture that sought stable earnings growth at any cost," SEC enforcement division director Linda Thomsen said in a statement. "Investors do not benefit when good corporate governance takes a back seat to a single-minded drive to achieve earnings targets."
Freddie's former President, Chief Operating Officer and Vice Chairman David Glenn, former Chief Financial Officer Vaughn Clarke, and former Senior Vice Presidents Robert Dean and Nazir Dossani also settled with the SEC without admitting or denying charges of negligent conduct.
The SEC said Glenn agreed to pay a $250,000 penalty and return $150,000 of allegedly ill-gotten gains. Clarke will pay a $125,000 civil penalty and return $29,227. Dossani will pay a $75,000 penalty and agreed to forego $61,663, while Dean will pay a $65,000 penalty and disgorge $34,658.
Attorneys for Glenn, Clarke, Dossani and Dean weren't immediately available to comment.
The SEC claimed Freddie misreported net income in 2000, 2001 and 2002 by 30.5%, 23.9% and 42.9%, respectively, and that Freddie's senior management exerted "consistent pressure to have the company report smooth and dependable earnings growth" to give investors the image of a company able to generate predictable earnings growth.
Freddie later restated three years of financial results for 2000, 2001 and 2002.
"We take these charges seriously, and that's why the Freddie Mac of today is a very different company than the Freddie Mac of the past," Freddie Mac Chief Executive Richard Syron said in a statement.
Syron said the SEC settlement, which is subject to court approval, would resolve outstanding investigations of Freddie's accounting and allow the McLean, Va., company to focus entirely on "further advancing our housing mission, effectively serving our customers and building our business for the future."
