NEW YORK (Reuters) ― Six former top executives at Fannie Mae and Freddie Mac were sued by U.S. regulators on charges of misleading investors about the mortgage finance companies’ exposure to risky home loans in the run-up to the 2008 financial crisis.
The case is one of the U.S. Securities and Exchange Commission’s biggest actions against high-level financial industry executives, although the regulator did not specify a dollar amount for damages in the alleged fraud. Many lawmakers consider Fannie Mae and Freddie Mac at least partly responsible for the 2008 crisis, saying they encouraged lax lending to home buyers that led to a massive real estate bubble.
The SEC brought civil fraud charges on Friday against former Fannie Mae CEO Daniel Mudd, former Freddie Mac CEO Richard Syron and four other one-time executives.
Mudd, now chief executive of Fortress Investment Group, and Syron left the mortgage finance companies after they were taken over by the government in 2008 as mortgage losses spiraled. The two firms have been propped up by $169 billion in federal aid since they were seized.
The SEC is seeking to bar the defendants from serving as officers or directors of public companies, among other penalties.
Fortress, one of the few publicly traded hedge fund and private equity companies, said it would review “the matters addressed in the complaint” against Mudd, but noted that the lawsuit concerned his previous job at Fannie Mae.
An attorney for Syron said the SEC case was “without merit” and relied on a mistaken approach in examining the mortgage giant’s disclosures. He said the firm had appropriately disclosed the amount of risk underlying its loans.
“Simply stated, there was no shortage of meaningful disclosures, all of which permitted the reader to assess the degree of risk in Freddie Mac’s guaranteed portfolio. The SEC’s theory and approach are fatally flawed,” attorney Thomas Green said.
Other defendants include former Fannie Mae Chief Risk Officer Enrico Dallavecchia, who later became chief risk officer at PNC Financial Services. PNC spokesman Frederick Solomon said Dallavecchia stepped down from his PNC post on Friday and was on administrative leave.
Attorneys for Mudd and Dallavecchia did not immediately respond to requests for comment.