Two former CEOs at mortgage giants Fannie Mae and Freddie Mac are the highest-profile individuals to have been charged in connection with the 2008 financial crisis. In a lawsuit filed in New York, the Securities and Exchange Commission brought civil fraud charges against six former executives at the two firms, including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron. The executives were accused of understating the level of high-risk subprime mortgages that Fannie and Freddie held just before the housing bubble burst.
Robert Khuzami, SEC’s enforcement director, stated that executives at both Fannie Mae and Freddie Mac told the world “that their subprime exposure was substantially smaller than it really was.” Khuzami noted that huge losses on their subprime loans eventually pushed the two companies to the brink of failure and forced the government to take them over. There has been widespread criticism of federal authorities for not holding top executives accountable for the recklessness that triggered the 2008 crisis. Hopefully, this filing is the start of more to come.
Fines against executives charged in SEC civil cases can reach up to $150,000 per violation. SEC Chairman Mary Schapiro has asked Congress to raise the limit to $1 million. The SEC has brought other cases related to the financial crisis since it began a broad investigation into the actions of Wall Street banks and other financial firms about three years ago. For example, Goldman Sachs & Co. agreed last year to pay $550 million to settle charges of misleading buyers of a complex mortgage investment. JPMorgan Chase & Co. resolved similar charges in June of last year and paid $153.6 million. Citigroup Inc. also agreed to pay $285 million to settle similar charges. But that settlement was recently rejected as being inadequate by a federal judge in New York City. Thus far, charges against prominent top executives have not happened. It will be interesting to see now if more individuals are charged.
Source: Associated Press
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