Congressmen from both parties have been piling on former Fannie Mae officials Franklin Raines, Daniel Mudd and Timothy Howard. Rep. Richard Baker of Louisiana went so far as to accuse former CEO Raines with having perjured himself before Congress.
In his testimony before a House subcommittee this week, acting Director of OFHEO, James Lockhart, was also tough on Raines.
"Fannie Mae has a special mandate and position of public trust. The previous management team, led by chairman and chief executive officer Franklin Raines, violated that trust," testified James B. Lockhart, acting director of the Office of Federal Housing Enterprise Oversight.
"By encouraging rapid growth, unconstrained by proper internal controls, risk management and other systems, they did serious harm to Fannie Mae while enriching themselves through earnings manipulation," he said.
[...]
Raines, a prominent Washington figure who was a White House budget director in the Clinton administration, earned more than $90 million from 1998 to 2003, according to the report - including some $52 million in bonuses directly tied to the company hitting earnings targets. He is one of 30 current and former Fannie Mae executives and employees who are being reviewed for possible disciplinary action, termination or forfeiture of their bonuses.
The report says that Raines, Howard and other senior executives "engaged in
improper earnings management in order to generate unjustified levels of
compensation for themselves and other executives." Raines and Howard, whose name
also was mentioned by lawmakers Tuesday, testified under oath in 2004 and
insisted that the regulators' allegations of accounting improprieties
represented an arguable interpretation of complex rules.
[...]
In last month's action, Washington-based Fannie Mae was fined $400 million by OFHEO and the SEC_ one of the biggest penalties ever in an accounting fraud case, according to the SEC. The company also agreed to limit the growth of its multibillion-dollar mortgage holdings, at least temporarily, capping them at $727 billion, and to make top-to-bottom changes in its corporate culture, accounting procedures and ways of managing risk.
Anyone who has been following this story for awhile knows that Fannie Mae officials were paid boatloads of money while they were employed and even after they were booted out the door. Raines severance package guaranteed him close to $1 million a year "base pay" for the rest of his life.
While Enron's received most of the press of late, Fannie Mae smells every bit as foul. I realize that the officers didn't bankrupt the company. It's a GSE, so it's doubtful the federal government would allow it to fail. Nevertheless, the rape and pillaging of the shareholders through the device of bogus inflated earnings engendered by accounting tricks strikes the casual observer as very Enron-like.
The fact that Raines was a Clinton appointee, and a former Clinton Administration Budget Director, suggests that greed crossed all party lines. Tom Delay and Ken Lay may be today's popular poster boys for "the culture of greed," but Franklin Raines et al. should be enshrined with them in the Bernie Ebbers Hall of Shame.
Attempting to water down Section 404 of SOX seems to be an uphill battle when stories like this continue to unfold. And this story is far from over.
As a result of lobbying, many politicians from both parties were being infuenced by Fannie Mae to oppose any investigation or review of their finances. OFHEO was held at a distance for many years, unable to review the Fannie Mae accounting system to uncover the fraud until recently. The GSEs should be prohibited from lobbying in the future.
Posted by: P Lee | June 09, 2006 at 08:11 AM
At the very least, they should be prevented from lobbying with respect to a pending investigation by the OFHEO.
Posted by: Kevin | June 09, 2006 at 05:32 PM