The agency charged with regulating mortgage finance giant Freddie Mac asked a federal judge yesterday to postpone his order to release more than $50 million in unpaid executive compensation to the company's ousted chief executive, arguing that it "will suffer irreparable harm" otherwise.
The motion by the Office of Federal Housing Enterprise Oversight (OFHEO) indicated it intends to appeal the order, issued Monday by U.S. District Judge Richard J. Leon. In it, Leon accused the regulator of "just overreaching" when it told Freddie Mac last year to withhold the severance payments and other compensation to Leland C. Brendsel.
Brendsel headed Freddie Mac when it was forced to delay reporting its 2002 earnings and ultimately had to restate several years' profits it had understated by $5 billion. A subsequent investigation accused the company of employing questionable accounting techniques to manage its earnings so that they showed a steady rise year after year.
In the request for a stay, Justice Department lawyers representing the agency accused the judge of "interference . . . in administrative proceedings" that are underway to determine how much Brendsel should collect under his employment contract. "Courts lack authority to review non-final agency action," it said.
The motion also argued that since OFHEO is a relatively new entity, having been created in 1992, many of the issues in the case are the courts' "first impression," and how they are decided will have a major impact on the agency's future authority.
Freddie Mac might well release Brendsel's money, it said, rendering moot an agency appeal on the question of whether it has the authority to prevent that. The motion acknowledged that the regulators could still seek restitution and fines, "but the question of OFHEO's authority to issue informal directives would not be resolved."
"The meaning and scope of the agency's enforcement authorities . . . are of fundamental significance to OFHEO's basic supervisory operations," it said. "The court's ruling threatens to severely constrain the agency's ability to fulfill its supervisory mandate."
Brendsel and two other executives -- president David W. Glenn and chief financial officer Vaughn A. Clarke -- were forced out. Regulators asked the company to withhold compensation for Brendsel and Clarke, who is also suing. Glenn settled.
An OFHEO spokeswoman said only that the agency is "in discussion with the Justice Department about how to proceed" in the Brendsel case. Brendsel's lawyer did not respond to a request for comment.