American taxpayers already have spent more than $160 million to defend lawsuits against Fannie Mae and Freddie Mac, the two federally-owned mortgage giants. More than $24 million of that money went to defend Fannie’s top three former executives, who caused many of the lawsuits by “deliberately and systematically” lying about the company’s earnings to boost their own salaries, according to an investigation by federal regulators.
And the legal bills will only continue to climb as lawsuits and investigations continue into misconduct at Fannie and Freddie, according to The New York Times. The newspaper reviewed a report on Fannie and Freddie’s legal expenses that was prepared by the Federal Housing Finance Agency (FHFA), which regulates both companies, for Rep. Randy Neugebauer (R-Texas). Fannie, Freddie, the FHFA and Neugebauer’s office did not return calls and e-mails seeking comment and a copy of the report.
Neugebauer, the new chair of the House Finance subcommittee Oversight and Investigations, has pressed for reform of Fannie and Freddie, but said recently that it could take a year to pass reform legislation.
“One of the things I feel very strongly about is we need to be doing everything we can to minimize any further exposure to the taxpayers associated with these companies,” Neugebauer told the Times.
Franklin Raines, Fannie’s former CEO, together with Timothy Howard, the former chief financial officer and Leanne Spencer, the former controller, manipulated the company’s profits between 1998 and 2004, according to a report by the FHFA. The accounting shenanigans allowed them to exactly hit profit projections every quarter. That created the false impression that the company was extremely well-run, but actually resulted in it overstating revenues by $10 billion, which boosted the three executives’ bonuses by $115 million.
Fannie Mae was forced to pay a fine to the Securities and Exchange Commission.
“Those achievements were illusions deliberately and systematically created by the Enterprise’s senior management,” the regulator found.
This long-running fraud by upper management has created even longer-running court battles that could end up costing American taxpayers many millions more. One of the biggest lawsuits is being brought by two public employee retirement systems in Ohio. The suit was filed six years ago and depositions are still being taken, the Times reported, which means it will likely drag on for many more years, and wrack up millions more dollars in legal fees.
Image: carnaval_08, via Flickr.com