SEC Notifies Fannie Mae Ex-CEO Mudd He May Face Civil Claims

Daniel Mudd, the former head of Fannie Mae, became the latest target in a probe by U.S. regulators of whether financial institutions were honest with investors about their exposure to subprime loans.

Mudd, now chief executive officer of Fortress Investment Group LLC (FIG), confirmed in a statement to Bloomberg News that the Securities and Exchange Commission notified him yesterday the agency intends to pursue civil claims against him.

Mudd, who was ousted when Fannie Mae and Freddie Mac were seized by regulators in September 2008, said he plans to submit a written rebuttal to the allegations.

The SEC’s investigation involves several people who were executives at Fannie Mae as the housing crisis deepened in 2007, according to two people with direct knowledge of the investigation who spoke on condition of anonymity because the matter isn’t public. It focuses on the firm’s disclosures to investors as the financial crisis gathered steam in 2007 and 2008, the people said.

The SEC previously notified one current and one former executive of Freddie Mac, Fannie Mae’s smaller competitor, that the agency may file similar allegations against them. Donald Bisenius, Freddie Mac’s executive vice-president for single- family credit guarantee, will leave the company April 1, according to a regulatory filing. Anthony “Buddy” Piszel, who served as CFO from November 2006 to September 2008, resigned as CFO of CoreLogic Inc. (CLGX) last month.

“I have the highest respect for the commission. Nevertheless, I could not disagree more with this turn of events,” Mudd said in the statement. “The disclosures and procedures that are the subject of the staff’s investigation were accurate and complete. These disclosures were previewed by federal regulators, and have been issued in the same form since the company went into government conservatorship.”

Soured Loans

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac were seized and placed under U.S. control in 2008 as losses on soured loans pushed them to the brink of insolvency. The two government-sponsored enterprises have been sustained by more than $150 billion in U.S. aid. Congress and the Obama administration are examining plans for winding down the firms and building a new system for financing housing debt.

Mudd, 52, took over from Franklin Raines as CEO of Fannie Mae in 2004, four years after he had joined the company as chief operating officer and as the company tried to recover from an $11 billion accounting restatement and securities fraud charges.

Fortress

He was appointed CEO of Fortress in August 2009, almost a year after he was ousted from Fannie Mae. He will remain CEO of the New York-based buyout and hedge-fund firm, according to a person with direct knowledge of the matter who spoke on condition of anonymity because the discussions were private.

Gordon Runte, head of investor relations at Fortress, declined to comment. A phone call and e-mail to Fannie Mae spokeswoman Amy Bonitatibus after normal business hours yesterday were not immediately returned.

The SEC’s probe echoes the agency’s July case against Citigroup Inc. The bank agreed to pay $75 million after the SEC accused the bank and two executives of failing to disclose $40 billion in subprime assets before losses surged. U.S. District Judge Ellen Huvelle faulted the agency for only sanctioning two executives for their roles in the matter.

In 2008, Freddie Mac was informed that the U.S. Attorney’s Office for the Eastern District of Virginia was investigating “accounting, disclosure, and corporate governance matters,” according to a regulatory filing. The SEC informed the company that it was under investigation for possible securities violations, and employees were interviewed.

Fannie Mae and Freddie Mac were created by Congress to encourage homeownership by making it easier for people to get loans. The firms now own or guarantee more than half of all U.S. mortgage debt, most of which they pool and sell on the secondary market.

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net; Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

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