Reuters: Regulatory News: Ex-Freddie CEO: SEC fraud case makes him scapegoat

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Ex-Freddie CEO: SEC fraud case makes him scapegoat May 1st 2012, 15:18 Tue May 1, 2012 11:18am EDT * Ex-CEO Richard Syron says did not mislead * SEC says executives underreported subprime exposure * Cases vs Freddie Mac, Fannie Mae arose from 2008 crisis By Jonathan Stempel May 1 (Reuters) - Former Freddie Mac Chief Executive Richard Syron said the U.S. Securities and Exchange Commission is trying to make him a scapegoat for the nation's housing crisis, and that its fraud lawsuit against him should be thrown out. Syron and two co-defendants said they did not mislead investors about Freddie Mac's exposure to subprime home loans prior to the Sept. 2008 government seizure of the mortgage finance company, as the SEC said they did. "This is an ill-conceived attempt to cast blame on defendants for losses that resulted from an unprecedented deterioration in the housing market that virtually no one expected -- including the Commission and other federal regulators," the defendants said in a filing late Monday night in the U.S. District Court in Manhattan. They called the SEC case "misguided" and "implausible". SEC spokesman John Nester declined to comment. The SEC had on Dec. 16 sued Syron, former Chief Business Officer Patricia Cook and former Senior Vice President Donald Bisenius, seeking civil fines and other sanctions over their conduct at Freddie Mac. On the same day, the SEC filed a similar case against three former executives at mortgage finance company Fannie Mae -- Chief Executive Daniel Mudd, Chief Risk Officer Enrico Dallavecchia and Executive Vice President Thomas Lund. They have sought to dismiss that case. Federal regulators have put Freddie Mac and Fannie Mae into a conservatorship under the Federal Housing Finance Agency. In December, the companies agreed to cooperate with the SEC and accept responsibility, without admitting liability. They were not charged. The SEC has tried to crack down on Wall Street and other executives accused of contributing to the 2008 financial crisis and five-year housing slump through lax underwriting and misleading marketing of mortgage securities. In its case against Syron, the SEC accused Freddie Mac of underreporting its subprime exposure between March 2007 and August 2008. It said, among other things, that Freddie Mac let its subprime exposure grow to $244 billion by June 30, 2008, even while reporting that exposure of its "single family guarantee" business to subprime loans was no more than $6 billion. Syron, who ran Freddie Mac from 2003 to 2008, and his co-defendants said the definition of subprime is not universal. They also said that even current management is not required to make disclosures that the SEC now demands in hindsight. "In an effort to scapegoat defendants, the complaint mischaracterizes statements about the company's so-called 'subprime' holdings, alleging they were fraudulent when they were neither false nor misleading," the defendants said. The government has lost $151 billion on investments in the companies. The Obama administration has projected that the loss could fall to $28 billion by 2022. The case is SEC v. Syron et al, U.S. District Court, Southern District of New York, No. 11-09201. Link this Share this Digg this Email Reprints

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