The government on Tuesday reached a $16.4 million settlement with Freddie Mac’s former CEO for his role in the mortgage finance company’s multibillion-dollar accounting scandal.
Leland Brendsel, who was ousted in 2003, agreed to pay $2.5 million in fines to the government, give back $10.5 million in salary and bonuses to Freddie Mac and to waive claims against the company for compensation worth $3.4 million.The settlement “represents a satisfactory conclusion to the enforcement actions” arising from the government’s investigation of Freddie Mac, James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight, said in a prepared statement.The office, which regulates Freddie Mac and its government-sponsored sibling, Fannie Mae, filed civil charges against Brendsel in December 2003. Under the settlement reached Tuesday, Brendsel’s disgorged salary and bonuses will be used to assist homeowners at risk of foreclosure.Brendsel’s attorney, Kevin M. Downey, said in a prepared statement that Brendsel agreed to the settlement “because it requires that most of the money paid will be used to assist families who are threatened with the loss of their homes” in the current mortgage market crisis. The statement noted that Brendsel denied the government’s allegations that he created a corporate culture that allowed the accounting lapses to occur.The settlement comes a week after billionaire investor Warren Buffett testified on behalf of the government against Brendsel. In video testimony to an administrative law judge in Washington weighing the case against Brendsel, Buffett said he detected signs of trouble at mortgage finance giant Freddie Mac years before the accounting lapse was revealed.Freddie Mac’s accounting scandal erupted in June 2003 when the McLean, Va.-based company said it had misstated earnings by $5 billion between 2000 and 2002 — artificially inflating results in some periods, while reducing them in others — as a way to smooth out quarterly volatility and hit Wall Street expectations.The company’s top executives were ousted. The events shocked Wall Street, where Freddie Mac, the nation’s second-largest buyer and guarantor of home mortgages, long had enjoyed a reputation as a steady performer and reliable corporate player.A year later, massive accounting problems were found at Fannie Mae, and that company’s chief executive, Franklin Raines, also was forced out.Raines also has been represented by Downey, Brendsel’s attorney, in a similar government action against him.Freddie Mac paid a then-record $125 million civil fine in 2003 in a settlement with the government, which blamed management misconduct for the faulty accounting.In September, Freddie agreed to pay a $50 million fine to settle civil securities fraud charges federal regulators brought in connection with the accounting lapse. In addition, four former Freddie Mac executives other than Brendsel settled negligent conduct charges by agreeing to pay a total of $515,000 in civil fines and to make restitution totaling $275,548.Fannie Mae and Freddie Mac, were created by Congress to make home ownership affordable for low- and middle-income people. The companies pump money into the nearly $11 trillion home-loan market by buying blocks of mortgages from lenders and then packaging them into securities for sale to investors.Shares of Freddie Mac were unchanged in after-hours trading after rising $2.05, or 4.3 percent, to close at $49.39.–AP Business Writer Marcy Gordon contributed to this report. Copyright 2007 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.