Washington (Dec. 12, 2003) -- Mortgage securities concern Freddie Mac agreed to pay a $125 million fine as part of a consent decree after a scathing report charged that the organization fostered "a pattern of inappropriate conduct and improper management of earnings” that eventually led to a massive restatement.
The fine is the largest-ever civil penalty levied by what is known as a “safety and soundness” regulator.
The Office of Federal Housing Enterprise Oversight, the regulator that oversees both Freddie Mac and the larger Fannie Mae, maintained that the company’s board was “complacent and failed to exercise adequate oversight,” while the company understated its earnings by roughly $5 billion from 2000 to 2002.
"A government-sponsored enterprise like Freddie Mac lives on a public trust that should never be violated," OFHEO Director Armando Falcon said in a statement. "The OFHEO will take strong action against an enterprise and responsible individuals if that trust is ever broken."
Under the settlement, the McLean, Va., company neither admitted nor denied wrongdoing, although Freddie Mac said it “strongly disagrees” with some of the findings of the OFHEO report.
Among its findings, OFHEO said Freddie Mac disregarded accounting rules, internal controls and disclosure standards, and said the incentive compensation plans of senior executives contributed to improper accounting and management practices. The agency recommended a number of changes, including separating the jobs of chairman and chief executive, and developing incentives for employees based on long-term goals, not short-term earnings.
-- WebCPA staff
