A Federal Probe of Fannie and Freddie
The mortgage giants have received grand-jury subpoenas on accounting and governance matters as the FBI widens its financial probe
by Keith Epstein
BW Exclusives
The Bailout: Senate Is Next - BusinessWeek
Stocks Lower in Early Trading - BusinessWeek
Automakers Get $25 Billion U.S. Loan Program - BusinessWeek
The Consumer and the Stock Market Storm - BusinessWeek
Gas Shortages Plague the Southeast - BusinessWeek
Story Tools
post a comment
e-mail this story
print this story
order a reprint
suggest a story
digg this
save to del.icio.us
linkedin connections There's nothing quite like a crisis to draw investigators looking for criminal action.
So it is now for the latest targets of various investigations: Fannie Mae (FNM) and Freddie Mac (FRE), the residential financing powerhouses whose accounting and disclosure records are being examined by a federal grand jury in New York. They join a corporate who's who of players swept up in the cascading economic crisis that also find themselves the subject of scrutiny by the FBI and others, from Lehman Brothers and insurer American International Group (AIG) to failed IndyMac Bancorp and mortgage lender Countrywide Financial.
In Freddie's case, the grand jury is focusing on "accounting, disclosure, and corporate governance matters" since January 2007, the McLean (Va.)-based company confirmed Sept. 30. Freddie said it received a subpoena on Sept. 26 from the U.S. Attorney's Office in Manhattan, as well as a notice from the Securities and Exchange Commission informing it of a separate inquiry. In both instances, the company was asked to preserve documents.
Masking Losses?
"Freddie Mac will cooperate fully," the company said in a statement. Fannie disclosed it had received a subpoena as well, in filings with the SEC.
Altogether, in the past year, some 26 companies with roles in the financial crisis have come under investigation, often because of suspected fraud. The SEC and Justice Dept. have declined to comment on the investigations. The FBI appears to have expanded its investigations not only to mortgage lenders but also investment banks, especially those that bundled home loans into securities. Among the current cases is one involving Bear Stearns; two former managers were arrested in June on securities fraud and other charges.
As long as 10 months ago, press reports suggested that Fannie masked potential losses on bad loans by using new accounting procedures. Both Fannie and Freddie have had to restate earnings in past years, following discoveries by federal regulators of irregularities on the companies' books.
Possible Criminal Charges
A number of members of Congress, including several on the Senate Judiciary Committee, have urged the FBI to be more aggressive in pursuing possible criminal charges against major players in the crisis. "If people were cooking the books, manipulating, doing things they were not supposed to do, then I want people held responsible," said Senator Patrick Leahy (D-Vt.), the committee's chairman, at a Sept. 17 oversight hearing on the FBI. "And I suspect every American taxpayer—I don't care what their political background is—would like them held responsible."
Presidential candidate John McCain is doing his part to leverage what he considers Democrats' responsibility for the failure of Fannie and Freddie. In a new national TV ad, McCain blames Democratic rival Barack Obama for failing to take action as the companies floundered. "John McCain fought to rein in Fannie and Freddie," the ad states. "Obama was notably silent."
The ad makes no mention of the McCain campaign's own connections to Freddie and Fannie. The lobbying firm of McCain's campaign chairman, Rick Davis, received more than $2 million since 2000 from Freddie; starting in late 2005 or early 2006, Freddie paid $15,000 a month. Both Freddie and Fannie paid Davis some $30,000 monthly from 2000 to 2005 for running an organization promoting homeownership.
Epstein is a correspondent in BusinessWeek's Washington bureau.
Reader Discussion
BW Extras
Podcasts
Top Designers
Behind the Cover
CEO Guide to Tech
more…
RSS Feeds
Most Popular
Top News
Innovation Trends
more…
E-mails
Asia Insider
MBA Express
BW.com Insider
more…
Blogs
Blogspotting
Hot Property
Tech Beat
more…
Business ExchangeTrack and share business topics across the Web.
Most Active Topics
Credit Crunch 449 new articles 137 users
AIG 185 new articles 80 users
Social Networking 420 new articles 155 users
2008 Election 380 new articles 90 users
Lehman Bros. 383 new articles 91 users
Most Popular Stories
Read
E-mailed
Discussed
The Bailout: Senate Is Next
Apple, Google, Amazon, Microsoft All Tumble
Stovall: Rising Hopes for Homebuilders?
Dow Jumps 485 Points
The iPhone Apps Sweepstakes
RSS Feed: Most Read Stories
The Bailout: Senate Is Next - BusinessWeek
Stovall: Rising Hopes for Homebuilders? - BusinessWeek
McCain vs. Obama: The Great Nonverbal Debate - BusinessWeek
Buffett Backs China Green-Auto Venture - BusinessWeek
Stocks: What the Meltdown Is Telling Us - BusinessWeek
RSS Feed: Most E-mailed Stories
The Bailout: Senate Is Next
World Economic Forum: China Looms Large
The iPhone Apps Sweepstakes
Mandel: Expand FDIC Coverage, Now
Social Media Will Change Your Business
RSS Feed: Most Discussed Stories
Most Popular Multimedia
Slide Shows
The 25 Most Influential People on the Web
Towns That Will Be Hit Hardest by Financial Crisis
The World's Best Places to Live 2008
The Top Undergrad Business Schools
The 100 Top Brands
RSS Feed: Most Popular Slide Shows
Ads by Google
FNM: Buy, Sell, or Hold?
Recently revealed stock picks from the most prolific trader in history
www.TheBestNewsletters.com
Is Your Bank In Trouble?
Free list Of Banks Doomed To Fail. The Banks and Brokers X List. Free!
www.MoneyAndMarkets.com
Fannie Mae investigation
Fannie Mae stock plan participants 11/16/07 to present, contact us.
www.shulaw.com
Independent Inquiries Ltd
Corporate Financial and Fraud Investigations
www.independentinquiries.com
BW Mall - Sponsored Links
Get up to $500k HSBC Term Life Ins. at HSBCusa.com Apply online today. No medical exam. No agent visit. Get instant coverage if you qualify.
Earn From 3.09% to 3.51% with AAA rated, GE Capital Corp. Not an offer of securities for sale
No Hassle Small Business Loans Instant Business Loan Quotes Up To $150K! Must Process $3K Per Month In Visa/MC. No Startups.
Learn Financial Planning On Your Own Schedule Enhance Your Resume, Change Careers, Make Your Money Work For You-Learn Financial Planning Online.
Find the Stock of the Year! Gryphon Financial wants to offer you the chance to take your investing to a much higher level.
Buy a link now!
Try BusinessWeek Today The ultimate source of business authority, insight and reporting.
