Fannie Mae's Former Chief Loses Plea To Move Case
Tuesday, May 1, 2007
Former Fannie Mae chairman Franklin D. Raines lost another round in the legal battle over his role in accounting troubles at the mortgage finance giant Friday when an appeals court refused to take the matter out of the hands of a regulator Raines has argued is biased against him.
Raines "has not shown a clear and indisputable right to the requested relief," a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit said without elaborating.
Raines is defending himself against administrative charges that he improperly manipulated Fannie Mae's earnings to maximize bonuses from 1998 to 2004. The agency that filed the charges, the Office of Federal Housing Enterprise Oversight, alleged that his misconduct and that of other former executives cost shareholders billions of dollars.
OFHEO is trying to recover $84.6 million in compensation from Raines, plus penalties of as much as $100,000 per day over five years.
In its ruling, the appeals court rejected Raines's request that the case be moved from the administrative law arena to a federal trial court. The court also rejected a similar petition by former Fannie Mae controller and Raines's co-defendant, Leanne G. Spencer.
A trial-like proceeding is scheduled to begin in March before an administrative law judge, who will then issue a recommendation to the OFHEO director. The director has the power to decide the case, though Raines and his co-defendants could take the case to the U.S. Court of Appeals.
Raines argued that the process puts OFHEO director James B. Lockhart III in the position of both accusing and judging him. In court papers, Raines said Lockhart has already concluded that he is "guilty of wrongdoing."
OFHEO said Lockhart was capable of making a fair decision and that Raines's complaints about the process reflected the nature of the administrative law system.
Raines lost an earlier round in the dispute when the administrative law judge rejected his request that the trial-like hearing begin in February of this year. That move would have given regulators and defense attorneys less time to prepare for a trial in which voluminous information is involved.
Raines, who headed the Office of Management and Budget in the Clinton administration, left Fannie Mae in 2004 under pressure from OFHEO. Last year, when Fannie Mae reached a $400 million settlement with regulators, the agreement with OFHEO barred Fannie Mae from employing Raines in the future.
Raines is also defending himself in litigation brought by Fannie Mae investors.
J. Timothy Howard, a former Fannie Mae chief financial officer who was also charged by OFHEO, has sought to get the case moved to federal court, too. Instead of petitioning the appeals court, he filed his request with the federal trial court handling the investor litigation. Howard's effort is pending.
Lawyers for Raines, Howard and Spencer did not respond to requests for comment yesterday, and by e-mail, Mark Fabiani, a spokesman for Raines, declined to comment. An OFHEO spokeswoman also declined to comment.
District-based Fannie Mae, chartered by the government to provide funding for mortgage lenders, corrected years of financial statements in December, acknowledging that it had overstated profit by $6.3 billion.