Fannie Mae Ex-Officials Are Sued for Disputed Pay

He was also a leader of the Business Roundtable, a lobbying group for chief executives of major companies, and he worked to repair corporate America's credibility after accounting scandals at Enron and other companies.

"As a CEO, one of the most offensive things about the corporate scandals that emerged recently was to hear CEOs claim that they did not know, they could not know, and they could not be expected to know about the activities that brought down their companies," Raines wrote in Fannie Mae's 2002 annual report.

In 2004, an OFHEO examination faulted Fannie's accounting and challenged its management, ultimately leading the company to settle charges of fraud and other violations with the Securities and Exchange Commission.

Fannie's accounting problems were so extensive that it took two years and cost more than $1.4 billion for thousands of workers to redo past financial reports. Fannie remains unable to issue current financial statements on a timely basis, one of the basic requirements of any public company, and in the absence of such reports, its shares continue trading on the New York Stock Exchange by special dispensation.

The charges filed yesterday are the first to target the top executives who presided over the company during the accounting debacle.

To unlock maximum executive bonuses for 1998, regulators alleged, Fannie understated expenses by almost $200 million, counted two years of low-income housing tax credits in a single year, and, through a last-minute bookkeeping entry, recorded $3.9 million of "miscellaneous income."

The complaint said Raines has testified that he had no reason to refute Spencer's statement that he signed off on the decision to defer the nearly $200 million of expenses.

Most of Fannie's flawed bookkeeping involved accounting for derivatives, financial instruments Fannie uses to hedge against movements in interest rates. Raines argued in 2004 that the derivatives accounting involved complex issues about which experts could disagree. Regulators said that the issues were black and white and that Fannie deliberately violated the requirements. Other companies have issued corrections over similar mistakes.

Relations between the company and the agency have often been antagonistic. In a May report, OFHEO alleged that Fannie lobbied to keep the agency poorly funded so that Fannie "would essentially be regulated only by itself."

Raines's successor as chief executive, Daniel H. Mudd, distanced himself from Fannie's posture under Raines, telling lawmakers this year that the days "of the arrogant, defiant my-way Fannie Mae had to end."

A Fannie spokesman declined to comment yesterday.

Unlike OFHEO, the SEC has taken no action against any Fannie Mae employee. The SEC's investigation is continuing, SEC spokesman John Nester said.

The Justice Department has said that it does not plan to prosecute Fannie Mae, though it has been investigating whether Raines and Howard committed perjury when they testified about Fannie's accounting at a 2004 congressional hearing.

Fannie, Raines and Howard, meanwhile, are defending themselves against litigation brought by shareholders.

Fannie Mae recently sued its former auditor KPMG, alleging the accounting firm's negligence caused damages of more than $2 billion. KPMG said it plans to pursue claims of its own against Fannie Mae.

A fair review of OFHEO's claims "will demonstrate the propriety in all respects of Mr. Howard's conduct," said his attorney, Steven M. Salky. Spencer's work "was nothing short of outstanding," said her attorney, David S. Krakoff.

OFHEO acted yesterday to meet a two-year statute of limitations. Its charges could take years to resolve. More than three years after an accounting scandal at Fannie's rival Freddie Mac, the agency remains in litigation to recoup pay from former Freddie executives.