OFHEO Plans Settlement With Raines
Friday, April 18, 2008
A federal regulator was preparing to announce a settlement today with former Fannie Mae chairman and chief executive Franklin D. Raines and two other former executives over administrative charges stemming from the company's misstatement of earnings, according to people familiar with the matter.
The Office of Federal Housing Enterprise Oversight sued the former executives in 2006, seeking to recoup more than $115 million of compensation the agency said they received while Fannie Mae's earnings were misstated, plus penalties that could have exceeded $100 million.
Raines, former chief financial officer J. Timothy Howard and former controller Leanne G. Spencer were fighting the charges, which were scheduled to be heard by an administrative law judge in September.
The anticipated settlement was reported yesterday on the Web site of the Wall Street Journal.
A spokeswoman for OFHEO declined to comment. Lawyers for the former executives did not return calls late yesterday. Raines declined to comment.
The people familiar with the matter spoke on condition of anonymity because of lack of authorization to discuss it publicly and because there has been no public announcement yet.
Raines, who headed the Office of Management and Budget in the Clinton administration, left Fannie Mae in 2004 after the Securities and Exchange Commission determined that it had used improper accounting. The federally chartered mortgage-funding company later corrected its books, wiping out $6.3 billion of previously reported profit.
District-based Fannie Mae reached a settlement with regulators in 2006, agreeing to pay $400 million.
Announcing the administrative charges in December 2006, OFHEO Director James B. Lockhart III said the former executives "improperly manipulated earnings to maximize their bonuses . . . misleading the regulator and the public." These charges cover 1998 to 2004.
Raines's lawyer, Kevin M. Downey, has alleged that Lockhart was using the case to advance the argument that Congress should give regulators more power over Fannie Mae and its rival Freddie Mac of McLean.
OFHEO brought administrative charges against former Freddie Mac chairman and chief executive Leland C. Brendsel in connection with a separate accounting scandal. Though the agency contended that Brendsel could have been held responsible for more than $1 billion of damages and fines, it settled with Brendsel last fall for $16.4 million.
That settlement came weeks into an administrative trial before the same judge who was slated to hear the former Fannie Mae executives' case, and Brendsel was represented by the same lawyer who has been defending Raines.
Brendsel's settlement did not include any admission of wrongdoing, and he continued to deny OFHEO's charges.
In the absence of a settlement in the case of former Fannie Mae executives, an administrative law judge would have presided over a trial-like hearing and issued an opinion. However, the judge's opinion would have been advisory, and the OFHEO director would have decided the matter. That decision is subject to appeal.
Staff writer Jeffrey H. Birnbaum and staff researcher Madonna Lebling contributed to this report.