SEC Sues Former Heads of Fannie and Freddie

The U.S. Securities and Exchange Commission is suing Daniel Mudd and Richard Syron, the former chiefs of Fannie Mae and Freddie Mac, over disclosures they made about subprime loans.

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Complaints were filed against the two men in Manhattan federal court today. Also being sued by the regulator are Enrico Dallavecchia, who was chief risk officer for Fannie Mae; Thomas Lund, Fannie’s former executive vice president; Patricia Cook, Freddie Mac’s former executive vice president; and Donald Bisenius, who was a senior vice president at Freddie.

“This action arises out of series of materially false and misleading public disclosures,” the SEC said in the complaint filed against Syron. The agency seeks as yet unspecified damages against the defendants. Neither Fannie nor Freddie are named as defendants in the case.Mudd served as chief executive officer of Fannie Mae from 2004 until he was ousted when federal regulators seized the mortgage lenders in September 2008. In a 2006 interview, Mudd said he planned to expand the companies’ holdings to include more higher-risk loans, telling investors in March of that year that anything else would be “counterproductive.”In April 2007, Mudd said in testimony before Congress that the firm’s exposure to subprime loans remained “minimal, less than 2.5 percent of our book.” At the same hearing, Syron said his firm hadn’t “been heavily involved in subprime all along.”

Within 18 months, subprime mortgage-related losses pushed each to the brink of insolvency, and forced the government to step in and take over.

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