SEC Notifies Freddie Mac Ex-CEO Syron He May Face Civil Claims

Richard Syron, the former chairman and chief executive of Freddie Mac, has been notified by U.S. regulators that he may face civil claims for failing to fully disclose the company’s exposure to risky mortgages, according to two people who have been briefed on the matter.

Syron, who ran the government-sponsored mortgage finance firm from 2004 to 2008, was recently given what is known as a Wells notice informing him that the Securities and Exchange Commission was considering a suit, said the two people, who spoke on condition of anonymity because the action isn’t public.

The notice is one of at least three sent to a current or former Freddie Mac official. Daniel Mudd, the former head of Fannie Mae, Freddie Mac’s larger rival, received a Wells notice March 11.

Florence Harmon, an SEC spokeswoman, declined to comment. Syron didn’t immediately respond to a phone message left at his home. E-mail and phone messages to his lawyer, Mark Hopson, weren’t immediately returned.

Syron, 67, was told he may be sued for providing inadequate disclosure of the extent of Freddie Mac’s risk of losses from subprime mortgages, according to one of the people.

The notice to Syron was previously reported by the New York Times today.

In their discussions with current and former officials at Freddie Mac, SEC officials have maintained that the language used by the mortgage firm in its disclosures didn’t properly reflect the low quality of many of its mortgages, according to one of the people briefed on the matter. The current and former officials told the SEC that the company provided substantial details on risk, including the credit scores of the people taking out mortgages and the size of the loans relative to the value of the homes.

Government Aid

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, set up by Congress to broaden mortgage financing, were private companies operating with an implicit government guarantee. They were placed under U.S. conservatorship in September 2008 as losses on mortgages and mortgage securities pushed them to the brink of insolvency.

The two firms have been sustained by more than $150 billion in U.S. aid, and along with the Federal Housing Administration now support more than 90 percent of the mortgage market.

Congress and the Obama administration are examining plans for winding down the companies and building a new system for housing finance that would rely more on private capital.

To contact the reporter on this story: James Sterngold in New York at jsterngold2@bloomberg.net. Joshua Gallu in Washington at jgallu@bloomberg.net.

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

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