For Brendsel, Court Wait Is Almost Over

Meanwhile, Freddie Mac has been subjected to special regulatory limits on its growth.

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The upcoming hearing tests both Brendsel and his accuser, the Office of Federal Housing Enterprise Oversight, a government agency whose sole mission is to oversee Freddie Mac and its competitor Fannie Mae.

The agency lost an early round in 2004, after a federal district court judge ruled that OFHEO overreached in trying to freeze about $50 million in benefits owed to Brendsel when he left Freddie Mac.

But OFHEO won a major victory over the summer. William B. Moran, the administrative law judge presiding over the case, rejected Brendsel's motion to decide the case in favor of the former chief executive without a trial. In the process, the judge rejected arguments at the heart of Brendsel's defense.

In effect, Brendsel's legal team at the law firm Williams & Connolly had sought to put OFHEO on trial by showing that the agency knew about problems at Freddie Mac and nonetheless gave it favorable reviews in annual public reports.

"A defense of finger pointing at OFHEO will not do," the judge wrote. "[U]ltimate accountability for the improper acts rests with the acts of those who ran Freddie Mac, not those who review such acts," the judge wrote.

The case is being heard in the arena of administrative law rather than in a civil or criminal trial court, and that poses a special challenge for Brendsel because it puts OFHEO in the role of both prosecutor and jury.

At the end of the months-long hearing, the administrative judge will make a recommendation to the OFHEO director, who decides the case. The director's decision can be challenged in a federal appeals court.

A similar case is pending against Franklin D. Raines and other former executives of District-based Fannie Mae, which experienced an accounting scandal of its own in 2004.

Freddie Mac's alleged manipulations and accounting errors caused it to understate profit by 30.5 percent in 2000 and 42.9 percent in 2002, and to overstate profit by 23.9 percent in 2001.

The alleged manipulations included transactions that shifted windfall earnings into later periods, when it might have been harder for the company to meet Wall Street's expectations. One series of transactions in 2001, known as the "linked swaps," postponed $420 million of operating earnings. The government said Brendsel learned about those transactions in 2001 and insisted that board members be given less information about them than another executive intended to provide.

Both Arthur Andersen and Freddie Mac's legal department raised concerns about the transactions, and then-President David Glenn urged Brendsel to unwind them, the government said. Brendsel waited almost three months to do so, by which time the $420 million shift had been accomplished, OFHEO has claimed.