Fannie Mae avoids criminal charges
WASHINGTON — The end of a criminal investigation — with no charges leveled — into alleged accounting fraud at mortgage-finance giant Fannie Mae doesn't necessarily mean its executives are free and clear.
The Securities and Exchange Commission (SEC) still could bring civil action against individuals, with the burden of proof less stringent than in criminal prosecutions. That includes former chairman and chief executive Franklin Raines — a Seattle native and Franklin High School graduate who was White House budget director under former President Clinton — and former Chief Financial Officer Timothy Howard.
Fannie Mae avoided criminal prosecution over its alleged multibillion-dollar accounting fraud, the latest twist in a saga of intrigue involving a politically potent company.
The decision, announced Thursday by the government-sponsored company, marks one more break in the succession of high-profile financial prosecutions in recent years.
Federal prosecutors in Washington, D.C., confirmed they had shut down their investigation of Fannie Mae's faulty accounting after two years. But the SEC could still act, and the federal agency that regulates the company and its smaller sibling, Freddie Mac, is considering possible administrative action against former Fannie Mae executives.
Regulators said the accounting scheme included manipulations to reach quarterly earnings targets so Fannie Mae executives could pocket hundreds of millions in bonuses from 1998 to 2004. Also, the discovery of falsified signatures on company documents supporting those accounting transactions had raised the possibility of criminal activity, some experts and observers say.
"We have informed them that we are declining all charges against the company," said Channing Phillips, spokesman for U.S. Attorney Kenneth Wainstein.
Fannie Mae helps finance one of every five home loans in the United States and is the second-largest U.S. financial institution after Citigroup.
Fannie Mae's restatement of its earnings is expected to be completed by year's end and to reach $10 billion, among the highest total in U.S. corporate history.
SEC Chairman Christopher Cox has cited "the many accounting failures that occurred at Fannie Mae, from books-and-records violations to fraud."
Fannie Mae was fined a record $400 million in a civil settlement in May with the SEC and the Office of Federal Housing Enterprise Oversight over the accounting problems and alleged earnings manipulation.
The housing agency is reviewing potential administrative actions against former Fannie Mae executives, spokeswoman Stefanie Mullin said Thursday. That could mean trying to force out executives or getting current or former executives to return some of their compensation, possibly taking the matter to court.
About 30 current and former executives and employees have been under review by the company for possible disciplinary action or termination, including Raines and Howard.
Fannie Mae's political clout is legendary, fostered by its large donations to lawmakers of both parties. Its roster of executives and directors long has featured Washington, D.C., insiders.
It was in September 2004, after its auditors refused to sign off on its earnings report, that Fannie Mae acknowledged that some of its accounting practices did not comply with generally accepted principles.
By December 2004, Howard and Raines were forced out.
Justice Department officials never confirmed publicly that any Fannie Mae executives were under investigation.
One Justice official said Thursday it was not expected that any individuals would be charged. The official requested anonymity because the overall investigation has not been formally closed.
Fannie Mae and No. 2 mortgage financer Freddie Mac were created by Congress to pump money into the $8 trillion home-mortgage market to keep interest rates low and make home ownership affordable for low- and moderate-income people.
