Daniel Mudd will take a leave of absence as chief executive officer of Fortress Investment Group LLC (FIG) after he was sued by the U.S. Securities and Exchange Commission over his role as former CEO of Fannie Mae.
Fortress co-founder Randal A. Nardone will take over as interim CEO effective immediately, the New York-based manager of buyout and hedge funds said today in a statement.
“I have requested a leave of absence from my position as chief executive officer to ensure that any time or attention I need to focus on matters outside of Fortress will not affect the business or operations of the company,” Mudd said in the statement.
Mudd and former Freddie Mac CEO Richard Syron were sued Dec. 16 for understating by hundreds of billions of dollars the subprime loans held by the firms. Fannie Mae, the government- sponsored enterprise that issues almost half of all mortgage- backed securities, and Freddie Mac, the McLean, Virginia-based mortgage company, had “agreed to accept responsibility” for their conduct, the SEC said.
In a statement the day the lawsuit was filed in Manhattan federal court, Mudd denied the charge, saying the U.S. government and its investors were aware of “every piece of material data about loans held by Fannie Mae.”
Fortress said in a Dec. 16 statement that the complaint against Mudd “does not relate to Fortress, and this matter has not impacted our company or our business operations.”
In the suit, the SEC said it wants financial penalties and disgorgement, and an order barring Mudd from serving as an officer or director of another company.
Fortress gained 0.3 percent to close at $3.38 in New York after falling as much as 3.9 percent earlier in the day. The firm’s shares have declined 41 percent this year.
“We don’t see it as a fundamental issue” for the stock, Amy Debone, an analyst at Washington-based Compass Point Research & Trading, said of Mudd’s departure.
The SEC in March sent Mudd a Wells notice, informing him that he could face claims for his role in the firm’s collapse. Under last year’s Dodd-Frank law, regulators must sue or drop such cases within six months. The SEC’s director of enforcement can grant investigators an extra 180 days to work a case and, beyond that, SEC commissioners have the power to extend the life of a probe indefinitely. Under the SEC’s rules, investigators weren’t required to notify Mudd if the inquiry was closed or extended.
Fannie Mae, based in Washington, and Freddie Mac were created by Congress to encourage homeownership by making it easier for people to acquire loans. The two were seized and placed under U.S. control in 2008 as losses on soured loans pushed them to the brink of insolvency, and they have been sustained by more than $150 billion in U.S. aid.
Mudd, 53, is the son of former CBS Evening News television reporter Roger Mudd. He joined Fannie Mae in 2000, serving as chief operating officer before being named CEO in 2004 as the company tried to recover from charges of an $11 billion accounting restatement and securities fraud. Prior to joining Fannie Mae, the Washington, D.C., native ran General Electric Capital Corp. (GE)’s Asian businesses during the region’s slump in 1998. He previously worked at Xerox Corp. (XRX) and the World Bank.
While a first lieutenant in the U.S. Marines, Mudd led the first platoon airlifted into Beirut on Oct. 24, 1983, a day after a truck bomb leveled a barracks housing Marines dispatched as peacekeepers during Lebanon’s civil war.
He joined Fortress in July 2009, 10 months after the government ousted him from Fannie Mae, replacing Wesley Edens, the firm’s co-founder and current co-chairman.
Nardone, Mudd’s replacement, co-founded Fortress in 1998 with Edens and Robert Kauffman. The trio previously worked together at BlackRock Financial Management Inc.
Fortress, founded as a private-equity firm in 1998, was the first alternative-asset manager to offer shares to the public when it raised $634 million in its February 2007 IPO. The firm oversaw $43.6 billion in assets as of Sept. 30.
To contact the editor responsible for this story: Christian Baumgaertel at email@example.com