Freddie Mac to pay fine to settle federal charges

$50 million (35.3 million EUR) as fine will be payed out by mortgage finance company Freddie Mac to settle federal charges.

Photo: Freddie Mac to pay fine to settle federal charges

The Securities and Exchange Commission announced the settlement Thursday. Freddie Mac neither admitted nor denied wrongdoing in the accord but did agree to refrain from future violations of the securities laws.

Three former Freddie Mac executives settled the SEC's negligent conduct charges by agreeing to pay a total of $265,000 (186,883 EUR) in civil fines and to make restitution totaling $125,548 (88,539 EUR).

"We take these charges seriously, and that's why the Freddie Mac of today is a very different company than the Freddie Mac of the past," said Richard Syron, Freddie Mac's chairman and chief executive officer.

An accounting scandal erupted at the government-sponsored company in June 2003 when it disclosed that it had misstated earnings by some $5 billion (currently 3.5 billion EUR) - mostly underreported - for 2000-2002 to smooth quarterly volatility in earnings and meet Wall Street expectations.

The company's top executives were ousted. The events shocked Wall Street, where Freddie Mac, the second-largest U.S. buyer and guarantor of home mortgages, long had enjoyed a reputation as a steady performer and reliable corporate player.

Freddie Mac paid a then-record $125 million civil fine in 2003 in a settlement with the Office of Federal Housing Enterprise Oversight, which blamed management misconduct for the faulty accounting.

In a lawsuit filed in federal court in Washington, the SEC said Freddie Mac "engaged in a fraudulent scheme that deceived investors about its true performance, profitability and growth trends."

"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," SEC Enforcement Director Linda Thomsen said in a statement.

The SEC said Thursday that the $50 million Freddie Mac agreed to pay will be distributed to shareholders injured by the alleged accounting fraud.