Magazine article American Banker

Notice of Charges against Former Freddie Execs

Magazine article American Banker

Notice of Charges against Former Freddie Execs

Article excerpt

The Office of Federal Housing Enterprise Oversight said Thursday that it is seeking $37.8 million of penalties from two former Freddie Mac executives for their role in the company's massive accounting scandal.

The agency accused Leland C. Brendsel, Freddie's former chairman and chief executive, and Vaughn Clarke, its former chief financial officer, of establishing, implementing, and overseeing a "tone at the top" that promoted improper earnings management so Freddie could fulfill Wall Street analysts' expectations.

"In order to ensure that Freddie Mac's financial objectives were met, transactions and strategies that were not accounted for in accordance with generally accepted accounting principles or otherwise improper were executed, with Messrs. Brendsel's and Clarke's direction and approval," the agency's notice of charges said.

OFHEO is seeking to deny Mr. Brendsel $24.3 million of compensation, charge him $5.8 million of civil money penalties, and collect $3.8 million of restitution. It also seeks $2.6 million of civil money penalties and $537,000 of restitution from Mr. Clarke and to deny him $750,000 of compensation.

Though Mr. Brendsel officially retired and Mr. Clarke resigned, the agency charged that both should have been terminated with cause, a status that would automatically strip them of their promised compensation packages. If they do not settle, the case will go to an administrative law judge, and ultimately OFHEO could issue a cease-and-desist order officially firing them.

A Freddie spokeswoman said the company would not fight a cease-and-desist.

"We will comply with any valid and effective order from our regulator," she said.

Lawyers for Mr. Brendsel and Mr. Clarke did not return phone calls seeking comment. The former executives have 30 days to respond to the notice.

Many lawyers here said to expect a protracted legal battle between the regulator and the former company officials. …

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