To Settle SEC Case, Government Pays Itself $100,000

Former Fannie Mac CEO reaches agreement that places no restrictions on future work

http://www.wsj.com/articles/to-settle-sec-case-government-pays-itself-100-000-1471991173

Former Fannie Mae chief executive  Daniel Mudd reached a “settlement” with the Securities and Exchange Commission in a crisis-era case it filed against him. The deal, filed on Monday, requires essentially nothing of Mr. Mudd.

The settlement includes a $100,000 payment—to be paid by Fannie Mae, which already pays its profits to the U.S. Treasury because it landed in government conservatorship in 2008. “One could see this as the government paying itself $100k to end the case,” Mr. Mudd said in an email.

The settlement also included no restrictions on Mr. Mudd’s future work, an “unprecedented” win, according to Mr. Mudd’s lawyer, James Wareham.

It is a remarkable end to a high-profile set of lawsuits the agency filed in 2011, when it sued six executives of the mortgage giants Fannie Mae and Freddie Mac, accusing them of misconduct tied to the 2008 financial crisis.

The cases accused the men—three from Fannie and three from Freddie—of allegedly misleading investors in the mid-2000s about the mortgage finance firms’ subprime holdings. It charged them with securities fraud, and announced the cases at a December 2011 press conference in conjunction with “nonprosecution agreements” the SEC reached with the two firms.

Mr. Mudd stepped down from his role as chief executive at Fortress Investment Group LLP the following month.

In the end, the three Fannie Mae cases settled for a total of $135,000 and the three Freddie Mac cases ended for a total of $310,000. The SEC settled five of the cases last year, with the two mortgage firms footing all of the bills.

The SEC settlement says only that Mr. Mudd “agrees to contribute, or cause to be contributed,” the $100,000 amount. Mr. Mudd confirmed Fannie Mae will make the payment. A Fannie Mae spokesman declined to comment.

An SEC spokesman didn’t immediately respond to a request for comment on Tuesday. On Monday, the spokesman declined to comment beyond the settlement.

Both Fannie and Freddie currently pay essentially all of their profits to the U.S. Treasury, after the government took control of them after the housing bubble burst.

The other two former Fannie Mae executives sued in connection with the case— Enrico Dallavecchia, who was chief risk officer, and Thomas Lund, who was head of single family lending—both agreed not to sign SEC reports for one year when they settled the cases last September. That essentially barred them from serving in senior positions at public companies for that period.

Under Mr. Mudd’s agreement, the SEC didn’t require any such bar. Mr. Mudd is currently head of investment firm Paladin Global.

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