Former Fannie, Freddie execs sued by SEC

The Securities and Exchange Commission (SEC) has sued six former executives at housing giants Fannie Mae and Freddie Mac, alleging they misled the public and investors about the amount of risky mortgages in their portfolio.

The regulator filed two separate suits against the former heads of the government-sponsored enterprises (GSEs) Friday in the U.S. District Court for the Southern District of New York. The former heads of Fannie and Freddie — Daniel Mudd and Richard Syron, respectively — were among those named in the suits.

In the claims, the SEC contends that as the housing bubble began to burst, the executives suggested to investors that the GSEs were not substantially exposed to sub-prime mortgages that were defaulting across the country.

"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, director of the SEC's Enforcement Division. "All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors."

Fannie and Freddie were ultimately brought down as the housing crisis developed, and had to be brought under federal conservatorship. The GSEs have required $141 billion of taxpayer funds so far to stay afloat.

The SEC is seeking financial penalties from the executives. Fannie and Freddie have agreed to cooperate with the litigation, in addition to entering into agreements wherein the GSEs do not dispute the facts of the case, nor accept responsibility.

The SEC said it reached this agreement with the entities while taking into consideration "the unique circumstances" of their current, government-supported status.

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