Securities Law

SEC Sues Former Fannie and Freddie Officials over Subprime Loan Disclosures

The Securities and Exchange Commission alleges in civil suits filed today that six former executives of Fannie Mae and Freddie Mac downplayed the mortgage firms’ exposure to risky subprime mortgages.

The defendants included former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron, report Bloomberg News, the New York Times and the Wall Street Journal (sub. req.). According to the Times, the two cases are the first major action by the SEC in its three-year investigation into Fannie and Freddie.

SEC enforcement chief Robert Khuzami announced the suits in a statement. “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” he alleged. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books.”

Fannie and Freddie buy mortgages from lenders and package them for sale to investors. The federal government rescued the ailing mortgage giants in 2008, and has since loaned the two companies $100 billion. Fannie and Freddie avoided prosecution by entering into separate agreements accepting responsibility without admitting wrongdoing.

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