The Office of Federal Housing Enterprise Oversight said that it has settled a 2003 action brought against troubled home mortgage lender Freddie Mac. As part of the agreement to put an accounting scandal behind it, Freddie will assist the government with cases against former executives.

The oversight office said that Freddie entered the agreement in order to resolve the case without incurring the costs and distraction of continued litigation. Freddie also agreed to retroactively fire its former chief executive, Leland Brendsel, and former chief financial officer, Vaughn Clarke, and seek recovery of funds from past officers. Brendsel and Clarke were forced out by the company's board in June 2003.

Freddie paid a $125 million civil fine in December 2003 in a settlement with the oversight office, after regulators blamed management misconduct for faulty accounting that led to a $5 billion misstatement of earnings between 2000 and 2002. Most of those earnings were underreported, in an attempt the company has said was made in order to reduce earnings volatility. The company neither admitted nor denied wrongdoing in settlements.

Freddie released the results for its first two quarters in a single report this month, as part of efforts to catch up on its financial reporting. The company has been behind schedule since early 2003, and hopes to resume its normal schedule early next year. The government-chartered company makes its money on the difference between the mortgage returns it buys from lenders and its financing costs.

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