Former Freddie Mac CEO Leland Brendsel agreed to a $16.4 million settlement with the government stemming from the mortgage company’s accounting scandal four years ago.
Brendsel will pay $2.5 million to the government and disgorge previously paid salary and bonuses of $10.5 million to Freddie Mac. He also waived claims against Freddie Mac for additional compensation valued at about $3.4 million.
That doesn’t mean the company will now be free from scrutiny. “While the Consent Order today represents a satisfactory conclusion to the enforcement actions arising from matters addressed in [our] special examination of Freddie Mac, we continue to monitor the [company’s] ongoing remediation,” said James Lockhart, director of The Office of Federal Housing Enterprise Oversight (OFHEO).
Brendsel was charged in December 2003 with establishing a corporate culture that allowed improper earnings management to develop, failing to ensure that adequate internal controls were put in place, and permitting the accounting function to operate without adequate resources.
In September, the Securities and Exchange Commission settled charges that Freddie Mac and four of its former executives, including its one-time CFO, perpetrated a multibillion-dollar accounting fraud.
The four charged were David Glenn, president, chief operating officer, and vice chairman; Vaughn Clarke, CFO; Robert Dean, senior vice president in the Market Risk Oversight department; and Nazir Dossani, senior vice president/investments in the Funding and Investments division.
Freddie Mac agreed to pay a $50 million penalty. Glenn, Clarke, Dossani, and Dean agreed respectively to pay $250,000, $125,000, $75,000, and $65,000, as well as smaller sums in disgorgement. All settled without admitting or denying the allegations.
The SEC accused Freddie Mac of engaging in a fraudulent scheme that deceived investors about its true performance, profitability, and growth trends. According to the complaint, Freddie Mac misreported its net income in 2000, 2001, and 2002 by 30.5 percent, 23.9 percent, and 42.9 percent, respectively.
Also, the regulator alleged, Freddie Mac’s senior management “exerted consistent pressure” to have the company report smooth and dependable earnings growth in order to present investors with the image of a company that would continue to generate predictable and growing earnings.
The commission noted that the company’s actions reflect a continuing trend. “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,” said Linda Chatman Thomsen, the SEC’s director of enforcement.