Ohio Joins Three Other States in Suing Freddie Mac
Freddie Mac’s troubles continued to multiply with numerous states filing suit against the nation’s No. 2 mortgage guarantee corporation.
Last week, Ohio became the latest state—joining New York, Virginia and West Virginia—to sue the mortgage finance company on grounds of improper accounting practices. State Attorney General Jim Petro filed suit on Friday, seeking to recoup the more than $25 million Ohio lost from its investments on behalf of state retirement systems for teachers and state employees.
"Freddie Mac was so intent on maintaining its public image that its officers and board were willing to ignore the rules of proper accounting at the expense of investors," Petro told the Associated Press, adding that the company's former executive team knowingly misled the public with an overly vague disclosure of information and allowed lower level managers to make financial decisions even though they lacked the proper skills and information.
Freddie Mac replaced its top three executives in June following an accounting investigation. The company’s president was accused of not fully cooperating with auditors reviewing the company’s 2000-2002 financial statements. Results of an informal probe of the company, begun by the Securities and Exchange Committee (SEC) in January, 2003, has prompted a formal investigation.
Former Freddie Mac chief executive Leland Brendsel and former Vice Chairman David Glenn deliberately allowed questionable accounting practices, said an independent report released in July.
The report placed the blame for the shoddy accounting squarely on the shoulders of Brendsel and Glenn, who allegedly controlled the information flow to help the company, known as "steady Freddie" for its stable earnings growth, report "non-volatile" profit growth, Reuters reported, adding that the two failed to act when the board became concerned about the company’s accounting practices in the fall of 2001. The report said, "Brendsel and Glenn failed to take prompt corrective action." Glenn was fired in June and Brendsel retired.
Freddie Mac is working to correct past accounting errors by restating past results, putting back in billions in profits that were not reported. Earnings results in the upcoming years will reflect these amounts. The SEC’s probe into Freddie Mac’s misdeeds is ongoing along with a Justice Department investigation.