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SEC charges ex-Fannie, Freddie CEOs with fraud

Federal regulators have charged six former executives -- including former CEOs -- at mortgage giants Fannie Mae and Freddie Mac with securities fraud, alleging they misled investors about their exposure to risky subprime mortgage debt.

The Securities and Exchange Commission said it sued three former executives at Fannie Mae and three at Freddie Mac Friday. The civil charges were filed in two separate lawsuits in federal court in New York City. Among those charged were former Freddie Mac CEO Richard Syron and former Fannie Mae CEO Daniel Mudd.

"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, Director of the SEC's Enforcement Division. Khuzami added that these misstatements "misled the market about the amount of risk on the company's books."

The SEC said both firms have agreed to cooperate with the agency and have entered into non-prosecution agreements.

Freddie Mac and Fannie Mae have been propped up by about $169 billion in federal aid since they were rescued by the government in 2008. Fannie and Freddie own or guarantee about half of U.S. mortgages, or nearly 31 million loans.

The Associated Press said lawyers for Syron and Mudd couldn't be reached. But in a statement obtained by CNBC, Mudd said, "This is a lawsuit that should never have been brought in the United States of America. Every piece of material data about loans held by Fannie Mae was known to the United States government and to the investing public. The SEC is wrong, and I look forward to a court where fairness and reason — not politics — is the standard for justice."

The SEC said it is seeking financial penalties, disgorgement of ill-gotten gains with interest and to bar Syron, Mudd and the others charged from serving as directors on company boards.

The others charged include:

  • Fannie Mae - former Chief Risk Officer Enrico Dallavecchia and former Executive Vice President of its single family mortgage business, Thomas A. Lund.
  • Freddie Mac - former Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the Single Family Guarantee business Donald J. Bisenius.

Reuters and The Associated Press contributed to this report.  

CNBC's Eamon Javers reports that the SEC is suing six Fannie Mae and Freddie Mac executives with securities fraud.