The SEC in a statement accused the six officers of making misleading statements that drastically understated the companies’ exposure to high-risk loans — loans that were issued to individuals with weak credit history, loans that had high loan-to-value ratios, or loans that used lower underwriting standards. The SEC’s complaint against the former Fannie Mae execs names chief executive officer Daniel Mudd, chief risk officer Enrico Dallavecchia, and executive vice president Thomas Lund. A separate complaint against the former Freddie Mac officials names chief executive Richard Syron, chief business officer Patricia Cook, and executive vice president Donald Bisenius. The SEC is seeking disgorgement of profits and financial penalties from the defendants, as well as permanently barring them from serving as an officer or director of a public corporation.
According to the Freddie Mac complaint, the company’s executives said that only $2 billion to $6 billion of the company’s Single Family Guarantee business was exposed to subprime loans, whereas the actual figure was $141 billion as of 2006 and then $244 billion by June 2008. As for Fannie Mae, the SEC alleges that the defendants understated the company’s exposure to subprime or “Alt-A” loans, giving out a figure of $4.8 billion when it was closer to $43 billion.
