WASHINGTON — Former Chairman and CEO of Fannie Mae Franklin Raines, former Chief Financial Officer J. Timothy Howard and ex-Controller Leanne Spencer agreed to pay a $31 million settlement to end a case surrounding their roles in a 2004 accounting scandal.
The charges were brought in 2006 by the Office of Federal Housing Enterprise Oversight following a two-year investigation alleging earnings mismanagement, failure to ensure adequate internal controls and the release of misleading financial reports. The oversight office estimated the costs for Raines at $24.7 million, $6.4 million for Howard and $275,000 for Spencer.
In a press statement Director James Lockhart said, "OFHEO's mission is to ensure that the enterprises operate in a safe and sound manner. That cannot occur without corporate management providing prudent and responsible leadership and setting the appropriate ethical and overall 'tone at the top.'"
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Raines issued a statement in response, declaring, "My agreement to end this dispute is consistent with my acceptance of accountability as the leader of Fannie Mae and with my strong denial of the allegations made against me." Attorneys for Howard and Spencer said OFHEO's charges were without merit. In 2006 Fannie Mae settled a civil fine, paying $400 million to OFHEO and the Securities and Exchange Commission.
As a result of the scandal, Fannie Mae and Freddie Mac faced stricter capital standards set by oversight office, which have since been rescinded to ameliorate the current foreclosure crisis and allow the government sponsored entities to buy more mortgages.
Much of the settlement cash will be paid by insurance and the stock surrendered by the executives has been so downgraded that it is now of much lower value.
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