Taxpayers bail out Fannie & Freddie for legal bills too
Back in 2004 the top officials of Fannie Mae were forced to resign in disgrace for an Enron-like accounting scandal that was designed to boost their bonuses and executive compensation (more here). Fannie Mae was also forced to pay hundreds of millions to settle lawsuits and fines by the SEC. At the head of this political criminal enterprise was Franklin Raines, appointed CEO by president Clinton in 1999. From 1999 – 2004 Raines received over $90M in salary and bonuses, of which, according to the SEC, $52M was “improperly awarded.” Raines, along with corruptocrat former senator Chris Dodd, was also part of the Countrywide VIP loan scandal. In 2008 dear comrade candidate employed Raines as a “financial adviser” because of his, um, extensive experience (more here). More on Raines extensive experience here (from Michelle Malkin).
While Raines and his plundering crew may have left Fannie in 2004, the legal bills associated with his criminal enterprise continue to mount. Thus far, the federal government has spent over $160M in legal fees defending Fannie & Freddie (story here from the NY Times) in civil lawsuits. Great – talk about adding insult to injury.
Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.
The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating.
Not included in this $160M are the tens of millions in legal fees spent by the GSEs prior to the government takeover.
In addition to the $160 million in taxpayer money, Fannie and Freddie themselves spent millions of dollars to defend former executives and directors before the government takeover. Freddie Mac had spent a total of $27.8 million. The expenses are significantly larger at Fannie Mae.
Legal costs incurred by Mr. Raines, Mr. Howard and Ms. Spencer in the roughly four and a half years prior to the government takeover totaled almost $63 million. The total incurred before the bailout by other high-level executives and board members was around $12 million, while an additional $18 million covered fees for lawyers for Fannie Mae officials below the level of executive vice president. Many of these individuals are provided lawyers because they are witnesses in the matters.
After the government moved to back Fannie and Freddie, the Federal Housing Finance Agency agreed to continue paying to defend the executives, with the taxpayers covering the costs.
Jeffrey Skilling (former Enron president) got 24 years in the slammer for his part in the Enron scam. Ken Lay (Enron CEO) would have gotten a similar sentence but he died before his sentencing hearing. Yet the taxpayers are forced to defend the perpetrators of the same scams at Fannie & Freddie. It would have been cheaper to prosecute them and send them off to prison.