Freddie Mac has agreed to pay a $125 million civil fine to settle federal regulator's allegations of mismanagement at the mortgage finance giant that is blamed for a $5 billion understatement of earnings.
The Office of Federal Housing Enterprise Oversight (OFHEA), which regulates Freddie Mac and the larger Fannie Mae, also released a report saying that weaknesses existed in every aspect of Freddie Mac's accounting process. The Wednesday report cited "a pattern of inappropriate conduct and improper management of earnings" at the company. It also said that Freddie Mac "disregarded accounting rules, internal controls, disclosure standards, and ultimately, the public trust in pursuit of steady earnings growth."
OFHEO even went so far as to say the company's board of directors "was complacent and failed to exercise adequate oversight" and that former management "exhibited a disdain for appropriate disclosure standards."
According to Reuters, the fine is about four times the 2003 budget for OFHEO, which is itself under scrutiny for not catching Freddie Mac’s problems sooner.
Freddie Mac entered into the consent order with OFHEO without admitting or denying any wrongdoing. It also said in a statement Wednesday that the company wanted to resolve the matter expeditiously, and that there are aspects of OFHEO's report with which it strongly disagrees.
Freddie Mac said it is undertaking remedial actions relating to governance, corporate culture, internal controls, accounting practices, disclosure and oversight, under the terms of the consent order.
"The board and management are working tirelessly to implement our remediation program to ensure that nothing like this ever happens again," said Freddie Mac Chairman Shaun O’Malley.
The Securities and Exchange Commission and the U.S. Attorney in Alexandria, Va., also are conducting investigations relating to the federally chartered company.