WASHINGTON - Freddie Mac on Friday was forced to find a new chief executive officer after the Office of Federal Housing Enterprise Oversight concluded that Gregory J. Parseghian was too involved in its accounting problems to be the permanent CEO.
But the agency agreed to let Mr. Parseghian, 42, remain as acting CEO while Freddie searches for a successor. It also demanded that Freddie fire its general counsel, Maud Mater.
(At press time, Freddie was expected to release a statement later agreeing to OFHEO's demands.)
Led by director Armando Falcon Jr., the agency investigated - and cleared - chief operating officer Paul T. Peterson and chief financial officer Martin F. Baumann.
The agency waited until after the markets closed to make its announcement, but Freddie shares fell 1.3%, to $49.47, and are off 19% for the year. The hubbub caused Freddie to postpone the sale of $1 billion of debt.
Mr. Parseghian was Freddie's chief investment officer before being promoted to CEO and president in June when three other senior executives were pushed out. That housecleaning came after an accounting snafu revealed in January mushroomed into a scandal. Freddie has acknowledged smoothing earnings by using complicated derivatives to push as much as $4.5 billion into future years; it plans to restate three years of earnings to fix the problem.
Freddie's board hired the Washington law firm of Baker Botts to find out what went wrong, and its July 23 report put most of the blame on the ousted executives, including former CEO Leland C. Brendsel.
Freddie's board has repeatedly backed Mr. Parseghian, but he has been hit steadily by negative press. The last straw may have been an Aug. 16 front-page Washington Post story about his sale of Freddie stock that included a statement from Mr. Parseghian that he "had nothing to hide."
Early Friday, Freddie posted a statement on its Web site responding to news reports predicting regulators would order it to get rid of Mr. Parseghian. The statement acknowledged that the Enterprise Oversight agency was talking to the company "about members of current management as well as management structure" but insisted that "speculation as to the nature or timing of resolving OFHEO's concerns is absolutely premature, as discussions are ongoing."
But by late afternoon Friday the agency had forced the company to nudge Mr. Parseghian aside and start seeking a new CEO. Once a successor is hired, Mr. Parseghian will be allowed to stay on as a consultant to help his successor in the transition. But OFHEO does not plan to let Mr. Parseghian continue as a full-time employee at Freddie. The terms of his compensation package would also have to be approved by OFHEO.
Some investors would prefer that at least for Freddie's investment portfolio Mr. Parseghian remain in the "driver's seat," said Lawrence Kam, the president of Sonic Capital, a Boston hedge fund that owns Freddie shares.
But Mr. Parseghian is not "indispensable," Mr. Kam said.
The Enterprise Oversight agency has been conducting a special exam of Freddie, and plans to release its findings in mid-September. Friday's moves were a result of the first phase of that exam. The next will address the compensation packages awarded the three executives ousted in June - Mr. Brendsel, former president David Glenn, and former CFO Vaughn Clarke. Freddie has said it would pay Mr. Brendsel two years' salary at $1.2 million per year, an $860,417 bonus, and $21 million in stock grants. Mr. Glenn would be allowed to keep $5.3 million of vested stock grants but would receive no further salary or bonus. Mr. Clarke's severance has not been disclosed.
The third phase of the exam will be what's made public next month. It will include other findings such as how well the board did its job and recommendations for the company, including such things as limiting how long a member can serve on the company's board.
