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Fannie/Freddie Legal Bills Cost $160M+

Discreetly tucked away in the ‘Business’ section of the New York Times:

Franklin Raines and Timothy Howard

Mortgage Giants Leave Legal Bills to the Taxpayers

By GRETCHEN MORGENSON
January 24, 2011

Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.

Why do we suspect that this request came from the newly Republican-controlled House?

The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating.

Documents reviewed by The New York Times indicate that taxpayers have paid $24.2 million to law firms defending three of Fannie’s former top executives: Franklin D. Raines, its former chief executive; Timothy Howard, its former chief financial officer; and Leanne Spencer, the former controller.

Late last year, Randy Neugebauer, Republican of Texas and now chairman of the oversight subcommittee of the House Financial Services Committee, requested the figures from the Federal Housing Finance Agency. It is the regulator charged with overseeing the mortgage finance companies and acts as their conservator, trying to preserve the company’s assets on behalf of taxpayers…

Just as we suspected. Needless to say this request would have gotten nowhere if the House were still under Democrat control.

Mr. Raines retired in December 2004 and Mr. Howard resigned at the same time. Ms. Spencer left her position as controller in early 2005. The following year, the Office of Federal Housing Enterprise Oversight, then the company’s regulator, published an in-depth report on the company’s accounting practices, accusing Fannie’s top executives of taking actions to manipulate profits and generate $115 million in improper bonuses.

Which, you would think, would be enough money to pay their attorneys.

The office sued Mr. Raines, Mr. Howard and Ms. Spencer in 2006, seeking $100 million in fines and $115 million in restitution. In 2008, the three former executives settled with the regulator, returning $31.4 million in compensation. Without admitting or denying the regulator’s allegations, Mr. Raines paid $24.7 million and Mr. Howard paid $6.4 million; Ms. Spencer returned $275,000.

So, according to our calculations, after returning some of their ill-gotten gain Mr. Raines and company still have $83.65 million dollars left over to pay their attorney fees. ($115 million – $31.375 million = $83.65 million.)

Fannie Mae also settled a fraud suit brought by the Securities and Exchange Commission without admitting or denying the allegations; the company paid $400 million in penalties

In addition to the $160 million in taxpayer money, Fannie and Freddie themselves spent millions of dollars to defend former executives and directors before the government takeover. Freddie Mac had spent a total of $27.8 million. The expenses are significantly larger at Fannie Mae.

So, in reality, taxpayers have paid much more than $160 million to defend Fannie and Freddie executives. How wonderful.

But where is the outrage from Barney Frank and the rest of the usual suspects who rail against bonus grabbing executives?

Legal costs incurred by Mr. Raines, Mr. Howard and Ms. Spencer in the roughly four and a half years prior to the government takeover totaled almost $63 million. The total incurred before the bailout by other high-level executives and board members was around $12 million, while an additional $18 million covered fees for lawyers for Fannie Mae officials below the level of executive vice president. Many of these individuals are provided lawyers because they are witnesses in the matters.

These are some pretty hefty attorney fees. But nothing is too good for our bureaucratic masters.

If the former executives are found liable, they would be obligated to repay the government. But lawyers familiar with such disputes said it would be difficult to get individuals to repay sums as large as these. Lawyers for Mr. Raines, for example, have received almost $38 million so far, while Ms. Spencer’s bills exceed $31 million.

These individuals could bring further litigation to avoid repaying this money, legal specialists said.

If they could not afford these lawyers, perhaps they should have gotten less costly ones. Or public defenders.

Although the figures are not broken down by case, the largest costs are being generated by a lawsuit centering on accounting improprieties that erupted at Fannie Mae in 2004. This suit, a shareholder class action brought by the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio, is being heard in federal court in Washington. Although it has been going on for six years, the judge has not yet set a trial date. Depositions are still being taken in the case, suggesting that it has much further to go with many more fees to be paid.

What an absolute disaster our justice system has become. Which is no accident, of course.

This article was posted by Steve Gilbert on Monday, January 24th, 2011. Comments are currently closed.

5 Responses to “Fannie/Freddie Legal Bills Cost $160M+”

  1. …lawyers familiar with such disputes said it would be difficult to get individuals to repay sums as large as these. But you know those same lawyers will get every dime of their fees before any restitution is made. I guess fraud at this level is like illegal immigration. Well, it happens all the time… everybody is doing it, so we’ll just let it go. Modern justice… or is this liberal “fairness” in action? If it’s difficult for them to pay, here’s a radical idea… SEND THEM TO JAIL!!!

    These individuals could bring further litigation to avoid repaying this money, legal specialists said. If they can’t pay the restitution, how exactly will they pay lawyer fees? Oh, I guess we’ll be on the hook for that money too.

    Has our justice system become so convoluted that you can get a lawyer to get you out of paying restitution at the expense of those you stole from? How does that work? If I robbed a bank, would the bank pay for my lawyer? This is outrageous and everyone involved should be jailed with extreme prejudice.

  2. proreason

    The legal system is now a division of the Marxist party. Lawyers are remora fish swimming around the whale, picking it’s teeth.

  3. P. Aaron

    Even more reasons, ($160 ml of them & counting) why the US gov’t should divest itself of social programs.

  4. Liberals Demise

    $160 Million+ and NOBODY is in the slammer.
    Grrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr

  5. BigOil

    More economic recovery – marxist style. 160 million dollars worth of lawyers jobs saved and created.

    It all makes sense once you develop the proper perspective.


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