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Archives – Franklin Raines At Fannie Mae

Some highly relevant archives.

First, a four year old article from the back pages of the Washington Post:

Armando Falcon, Jr., Director of the Office of Federal Housing Enterprise Oversight, testifies before the Senate Banking Housing and Urban Affairs Subcommittee on Housing and Transportation in Washington DC on May 8, 2001.

A Gutsy David Takes On a Goliath

By Cindy Skrzycki
Tuesday, December 28, 2004; Page E01

There are no awards for moxie in regulating, but if such a program is ever established, supporters of Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, would probably nominate him. The tiny agency was created in 1992 to oversee Fannie Mae and Freddie Mac, two government-backed housing financiers with assets and mortgage guarantees adding up to more than $3 trillion

It has David and Goliath features: a tiny agency taking on a gigantic company; Falcon, an unknown regulator paid $158,100 annually, going up against Fannie Mae chief executive Franklin D. Raines, who received $16.8 million in cash compensation in 2003

Three months ago, Falcon and his agency dropped a bombshell: a report that concluded Fannie Mae committed numerous accounting and earnings mistakes. The investigation began after members of Congress blamed OFHEO for missing similar problems at Freddie Mac.

Then the Securities and Exchange Commission’s chief accountant agreed with OFHEO, directing Fannie Mae to correct its financial statements, a move that could erase $9 billion in reported profit. The SEC and the Justice Department are investigating further, the company’s board has ordered an independent outside review, and shareholders have filed numerous lawsuits. Last week Raines and Fannie Mae’s chief financial officer were forced out by the company’s board, under pressure from OFHEO…

Next, a three year old report in the Washington Post:

False Signatures Aided Fannie Mae Bonuses, Falcon Says

By Kathleen Day and Terence O’Hara
Thursday, April 7, 2005; Page E01

Fannie Mae employees falsified signatures on accounting transactions that helped the company meet earnings targets for 1998, a “manipulation” that triggered multimillion-dollar bonuses for top executives, a federal regulator said yesterday.

Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, said the entries were related to the movement of $200 million in expenses from 1998 to later periods. The result of the changes was an increase in Fannie Mae’s 1998 earnings per share and the release of a $27.1 million bonus pool for senior executives.

Fannie Mae reported paying the following executive bonuses in 1998: chairman and chief executive James A. Johnson received $1.932 million; Franklin D. Raines, chairman-designate, received $1.11 million; Chief Operating Officer Lawrence M. Small received $1.108 million; Vice Chairman Jamie S. Gorelick received $779,625; Chief Financial Officer J. Timothy Howard received $493,750; and Robert J. Levin, an executive vice president, received $493,750…

Falcon, during congressional testimony and in comments afterward, publicly drew a link for the first time between the falsified signatures, which his agency disclosed last month, and the accounting manipulations that led to bonuses, which OFHEO disclosed in the fall. A Fannie Mae employee has told investigators that financial records from 1999 to 2002 bore his name and signature but were not prepared by him, Falcon testified.

“We have identified several problems involving procedures for preparing, reviewing, authorizing and recording” Fannie Mae’s accounting, Falcon said. His office has said it is sharing all information from its probe with the Securities and Exchange Commission and the Department of Justice…

A spokesman for Fannie Mae, Charles V. Greener, said the company had no comment. Lawyers for Raines and Howard did not return telephone calls seeking comment on whether they knew about the falsified signatures or other problems Falcon cited. Small declined to comment. Gorelick did not return a phone message. The company would not make Levin, who still works there, available…

The accounting scandals are being used by Rep. Richard H. Baker (R-La.), chairman of the subcommittee that held the hearing, and the Bush administration to move forward on legislation that would increase oversight and curb the growth of Fannie Mae and Freddie Mac. Baker and others have tried for years to pass such legislation, only to find it defeated by the lobbying efforts of the two companies.

The companies’ accounting scandals have bolstered the position of critics, such as Federal Reserve Board Chairman Alan Greenspan. He told the Senate Banking Committee yesterday that the companies’ federal subsidies may not benefit homeowners and that the firms’ large size and dominance of housing markets could pose a threat to the nation’s financial system if they ever fell into trouble.

While there is a general consensus in Congress that Fannie Mae and Freddie Mac need a new, stronger regulator, Greenspan’s testimony focused largely on the most controversial aspect of the debate: the size of the companies’ portfolios of mortgage assets. Together, the mortgages and mortgage-backed securities that Fannie Mae and Freddie Mac own total $1.5 trillion, a more than tenfold increase in the past 15 years.

The Fed chairman called on Congress to sharply reduce the two companies’ massive mortgage portfolios “while we can,” saying that without a reduction, they will “inevitably” have major financial problems, causing a crisis in the economy

And then this report from last April, on how Mr. Raines was “punished” from Associated Press:

Scandal to Cost Ex-Fannie Mae Officers Millions

Published: April 19, 2008

WASHINGTON (AP) — Franklin D. Raines, former chief executive of Fannie Mae, and two other top executives are paying a total of nearly $31.4 million over their roles in a 2004 accounting scandal in a settlement that the government announced Friday.

Mr. Raines; the former chief financial officer, J. Timothy Howard; and the former controller, Leanne G. Spencer, were accused in a civil lawsuit in December 2006 of manipulating earnings over a six-year period at the company, the largest American financier and guarantor of home mortgages.

Mr. Raines, a prominent Washington figure who was President Bill Clinton’s budget director, has agreed to pay $24.7 million, including a $2 million fine. Mr. Howard is paying $6.4 million and Ms. Spencer $275,000.

Mr. Raines will also give up company stock options valued at $15.6 million.

The deal was announced by the Office of Federal Housing Enterprise Oversight, the agency known as Ofheo that oversees Fannie Mae and Freddie Mac, the two big government-sponsored mortgage finance companies.

Fannie and Freddie both had multibillion-dollar accounting scandals that stunned Wall Street and brought record civil fines against them in settlements with the government.

Ofheo had sought fines of around $100 million against the three and restitution totaling more than $115 million in bonus money tied to an improper accounting scheme.

The regulators said an accounting fraud at Fannie Mae included manipulations to reach earnings targets so that Mr. Raines, Mr. Howard, Ms. Spencer and other company executives could pocket hundreds of millions in bonuses from 1998 to 2004.

Fannie Mae paid a record $400 million civil fine in a settlement with Ofheo and the Securities and Exchange Commission. It also agreed to make top-to-bottom changes in its corporate culture, accounting procedures and ways of managing risk.

That is to say, Mr. Raines had to give back some portion of his stolen loot.

Some punishment.

This article was posted by Steve on Friday, September 19th, 2008. Comments are currently closed.

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