Players Oddly Aligned In New Fannie Mae Case
Fannie Mae has paid $3.9 million in legal fees incurred by former chief executive Franklin D. Raines.
(By Brendan Smialowski -- Bloomberg News)
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Wednesday, December 20, 2006
The legal battle regulators began Monday to extract hundreds of millions of dollars from executives who presided over Fannie Mae's accounting debacle is not your garden variety lawsuit.
For one thing, after the evidence has been heard, it is the accuser who will render judgment.
For another, the accused can bankroll their defense with Fannie Mae's money.
As of September, Fannie Mae had spent $3.9 million in legal fees for former chief executive Franklin D. Raines alone -- and that was before this stage of the struggle even began.
All signs point to a long fight.
Raines, former chief financial officer J. Timothy Howard and former controller Leanne G. Spencer have been charged administratively with manipulating earnings over several years to maximize bonuses. They are the first executives the government has sought to punish for one of the biggest accounting blowups in U.S. history, an amalgamation of misstatements that inflated Fannie Mae's profits by $6.3 billion.
Lawyers for the former executives deny the charges and say the case is driven by political considerations, such as the regulators' pursuit of expanded powers.
The small federal agency that accused Raines and others of manipulating earnings has been described over the years as weak, underfunded and ineffectual. Lawmakers and Bush administration officials have said it needs more power to prevent Fannie Mae and Freddie Mac, the government-chartered mortgage finance companies, from causing serious financial trouble.
But the Office of Federal Housing Enterprise Oversight has powerful legal tools at its disposal in its campaign to recoup alleged ill-gotten gains from the former Fannie Mae executives.
In addition to going after bonuses and other compensation the executives received while the earnings were misstated, OFHEO is seeking penalties of as much as $100,000 a day for years of alleged misconduct.
The charges are to be examined by an administrative law judge. After the evidence has been heard, the judge's job is to make a recommendation to the director of OFHEO, who will then decide.
That could be James B. Lockhart III, the director of OFHEO, who announced the charges Monday.
