For Brendsel, Court Wait Is Almost Over
Thursday, October 11, 2007
Four years after he was pushed out as chairman and chief executive of Freddie Mac and charged with responsibility for elaborate accounting manipulations, Leland C. Brendsel is about to get his day in court.
With hundreds of millions of dollars of potential penalties riding on the outcome, a trial-like proceeding is set to begin Monday before an administrative law judge. It is scheduled to continue through the end of February.
The dozens of witnesses slated to testify include Warren E. Buffett, the billionaire investor, and C.E. Andrews, the chief executive of student loan marketer Sallie Mae who helped lead audits of Freddie Mac when he was a partner at Arthur Andersen. The government plans to call senior executives who served under Brendsel to testify against him.
In addition to seeking vast fines, the government wants Brendsel to repay Freddie Mac any compensation he received unjustly.
Brendsel's legal team summarized its defense in a recent court filing, saying the financial stability of Freddie Mac was never compromised.
"Mr. Brendsel was not making detailed decisions about the daily operations of Freddie Mac during the period in question and could not, even by exercising 'reasonable supervision,' be aware of each of the hundreds of activities, projects and trades that Freddie Mac's 4,500 employees were pursuing at any given moment," the filing said.
The government tells a different story. It says Brendsel "directed, was aware of, and participated in the unsafe and unsound financial transactions and manipulations."
"Any attempts by him to place blame for his unsafe and unsound conduct on others, or claim that Arthur Andersen's audits shield him from culpability and liability should be summarily rejected," a government agency said in a recent legal filing.
Several years ago, Brendsel was one of the preeminent figures in American finance, having built Freddie Mac into a mortgage funding powerhouse with a reputation for financial sophistication. Raised on a farm in South Dakota, the onetime academic rose to become proprietor of Wye Hall, one of Maryland's historic estates.
Then, in 2003, the McLean company revealed that it had misstated its financial results by billions of dollars. The board of the government-sponsored firm drove Brendsel, now 65, into early retirement. An investigation commissioned by Freddie Mac's outside directors found that the company engaged in a variety of machinations to report smooth earnings growth and preserve its reputation as "Steady Freddie."
A federal regulator argued that Brendsel should have been fired for cause, and officials sought to block him from receiving tens of millions of dollars of compensation and benefits.
The scandal has been costly for Freddie Mac. It has agreed to pay about $590 million to settle claims by regulators and investors, and it has spent large sums overhauling computer systems and other internal controls that were revealed to be deficient. It has been unable to perform a basic function of any public company, issuing audited financial statements on a timely basis. The company has said that it expects to resume doing so next year, which would be five years after the accounting problems came light.