December 19, 2006
Fannie Mae's main regulator sued the company's former chairman and chief executive, Franklin D. Raines, and two top financial officers yesterday in an effort to extract more than $215 million in bonus payouts and fines over their involvement in a huge-scale accounting scandal.
The regulator, the Office of Federal Housing and Enterprise Oversight, is seeking about $100 million in penalties.
Ofheo filed 101 civil charges against Mr. Raines; Fannie Mae's former chief financial officer, J. Timothy Howard; and the former controller, Leanne G. Spencer.
The Ofheo director, James B. Lockhart III, said in a conference call yesterday: "We believed as an agency that these three individuals, separately and together, did serious harm to the company. There is a long list of charges that show they allowed this company to grow out of control."
Echoing many findings that the agency's 27-month investigation into Fannie Mae uncovered in May, the lawsuit contended that the three executives took part in widespread misconduct and mismanagement from 1998 to 2004. It accused them of filing misleading financial reports, improperly applying accounting principles while knowingly failing to establish sound internal controls and misleading regulators. All the while, the three were said to have been manipulating Fannie Mae earnings to maximize their bonuses.
Ofheo filed a similar suit against the former chief executive and chief financial officers of another federal-linked lender, Freddie Mac, in December 2003, seeking civil penalties and the return of more than $37 million in bonuses. That case has been bogged down in intense battles for three years and is still wending its way through administrative law courts.
Ofheo said it was seeking more than $100 million in civil penalties "in light of the multibillion-dollar harm" Fannie Mae caused to investors. The company recently completed a $6.3 billion restatement to correct its financial results up to 2004, among the largest for any public company.
It is asking Mr. Raines to give back about $84.6 million of the $91.1 million that he collected.