If Fannie Mae wasn’t busy enough sifting through the wreckage of its once proud business while operating under conservatorship, the government-sponsored enterprise is still diverting resources to executives from crises past.
So far this year, Fannie – and therefore the taxpayer – has spent nearly $4 million defending three of its former top executives from a shareholder suit stemming from the GSE’s 2004 accounting scandal, according to data provided by the Federal Housing Finance Agency.
The bulk of that amount -- $1.76 million – went to Franklin Raines, the chief executive who was ousted in the wake of the accounting mess, which ultimately resulted in a $6.3 billion restatement. Another $1.3 million went toward defending Leanne Spencer, Fannie’s former controller and nearly $900,000 was directed to the defense of J. Timothy Howard, who was the chief financial officer.
Those figures are on top of the almost $2.4 million Fannie spent defending the trio during the last three months of 2008.
Though any use of taxpayer money to support disgraced financial executives has fueled anger on Capitol Hill – think bonuses for executives at American International Group Inc. – the $6.3 million spent by taxpayers to defend Fannie’s former leadership is rather minor, especially considering the GSE lost $956 million during the second quarter.
And it might even behoove the government to continue shelling out for Fannie’s defense, even though the case has no end in sight. For one, Fannie’s employment contract with these former executives promised to pay the legal fees of actions related to the GSE. If the government canceled that arrangement, the executives would almost surely sue and cost the government more money.
Meanwhile, the government likely wants the executives to win the case or settle for as little money as possible. A big judgment against the company, at this point, would also be paid by the taxpayer’s dime.