The watchdog alleges that the executives “knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including sub-prime loans”.
Daniel Mudd, the former chief executive of the Federal National Mortgage Association (Fannie Mae), its former chief risk officer Enrico Dallavecchia and Thomas Lund, the former executive vice-president of the single family mortgage business, are among those charged.
The SEC’s complaint against the former Fannie Mae executives accuses them of under-reporting the number of loans to “borrowers with weaker credit histories” backed by the company.
From the Federal Home Loan Mortgage Corporation (Freddie Mac), former chief executive Richard Syron, past chief business officer Patricia Cook and former executive vice-president for the single family guarantee business Donald Bisenius were charged in a separate filing.
The complaint against them alleges investors were led to believe the company used a broad definition of sub-prime loans and was disclosing all of its single-family sub-prime loan exposure, but that it built up a much higher level than was suggested.
Robert Khuzami, the director of the SEC’s enforcement division, says: “Fannie Mae and Freddie Mac executives told the world that their sub-prime exposure was substantially smaller than it really was.
“These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to sub-prime loans and misled the market about the amount of risk on the company’s books.”
Following the sub-prime mortgage crisis in the US, the shares of Fannie Mae and Freddie Mac slumped as the government-sponsored enterprises racked up multi-billion-dollar losses.
The two companies were taken over by the government in September 2008 when they were placed into conservatorship of the Federal Housing Finance Agency.
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