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SEC charges ex-Fannie, Freddie CEOs with fraud Roswell Daily Record
WASHINGTON (AP) — The Securities and Exchange Commission on Friday brought civil fraud charges against six former top executives at Fannie Mae and Freddie Mac, saying they misled investors about risky subprime loans the that mortgage giants held when the housing bubble bust. Those charged include the agencies’ two former CEOs, Fannie’s Daniel Mudd and Freddie’s Richard Syron. They are the highest-profile individuals to be charged in connection with the 2008 financial crisis. The federal government has faced criticism for not bringing charges against top executives who may have contributed to the worst financial meltdown since the Great Depression. Mudd, 53, and Syron, 68, led the mortgage giants in 2007, when home prices began to collapse. The four other top execu-
tives also worked for the companies during that time. The lawsuit was filed in federal court in New York City. “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, SEC’s enforcement director. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk.” Fannie and Freddie both entered into agreements with the government on Friday, accepting responsibility for its conduct without admitting or denying the charges. The government-controlled companies also agreed to cooperate with the SEC on the cases against the former executives. The Justice Department has
opened up probes into Fannie and Freddie but has not charged anyone with a crime. In a statement released through his attorney, Mudd said the lawsuit “should never have been brought” and said the government reviewed and approved all of the company’s financial disclosures. “Every piece of material data about loans held by Fannie Mae was known to the United States government to the investing public,” Mudd said. “The SEC is wrong, and I look forward to a court where fairness and reason — not politics — is the standard for justice.” Syron’s lawyer couldn’t be immediately reached for comment. According to the lawsuit, Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books, or just 0.2 percent of its portfolio. The SEC says that Fannie actual-
ly had about $43 billion worth of products targeted to borrowers with weak credit, or 11 percent of its holdings. Mudd told a congressional panel in March 2007 that Fannie’s subprime business represented less than “2 percent of our book.” He also said the company held subprime mortgages “very carefully.” A month later, he told a separate congressional panel that subprime loans represented less than 2.5 percent of Fannie’s books. Freddie told investors in 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books. The SEC says its holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008. In a May 2007 speech in New York, Syron said Freddie had “basically no subprime exposure,” according to the suit.
SALT LAKE CITY (AP) — Jurors are deadlocked in a Utah company’s $1 billion federal antitrust lawsuit against Microsoft Corp., a federal judge said Friday. They were ordered to continue deliberations until 5 p.m. MST. The judge said if the jury still is undecided then, he may dismiss the case, leaving Novell Inc. attorneys with little to show for a decade of work. Novell Inc. sued Microsoft in 2004, claiming the Redmond, Wash., company violated U.S. antitrust laws through its arrangements with other software makers when it launched Windows 95. Novell said it was later forced to sell WordPerfect for a $1.2 billion loss. It was unknown why jurors were deadlocked, but they have expressed confusion to the judge throughout deliberations, even bringing one question to the court
that could not be answered. The judge told them to simply disregard the question. Earlier Friday, the judge denied a request from one juror to be removed from the case. Novell claims Microsoft duped it into developing the once-popular WordPerfect writing program for Windows 95 only to pull the plug so Microsoft could gain market share with its own product. Microsoft lawyers have argued that Novell’s loss of market share was its own doing because the company didn’t develop a compatible WordPer fect program until long after the rollout of Windows 95. WordPerfect once had nearly 50 percent of the market for word processing, but its share quickly plummeted to less than 10 percent as Microsoft’s own Office programs took hold. Microsoft co-founder Bill Gates
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and then sell them to investors around the world. The two own or guarantee about half of U.S. mortgages, or nearly 31 million loans. During the financial crisis, the two firms verged on collapse. The Bush administration seized control of them in September 2008. So far, the companies have cost taxpayers almost $150 billion — the largest bailout of the financial crisis. They could cost up to $259 billion, according to its government regulator, the Federal Housing Finance Administration. Mudd was fired from Fannie after the government took over. He’s now the chief executive of the New York hedge fund Fortress Investment Group. Syron resigned from Freddie in 2008. He’s now an adjunct professor at Boston College.
Research firm boosts outlook for holiday
AP Photo
Jury deadlocked in $1B Microsoft suit In this Nov. 21 photo, Bill Gates arrives to testify at the Frank E. Moss federal courthouse in Salt Lake City.
Sunday, December 18, 2011
testified last month that he had no idea his decision to drop a tool for outside developers would sidetrack Novell. Gates said he was acting to protect Windows 95 and future versions from crashing. Novell could have worked around the problem but failed to react quickly, he said. Novell has argued that Gates ordered Microsoft engineers to reject WordPerfect as a Windows 95 word processing application because he feared it was too good. Novell’s lawsuit is the last major private antitrust case to follow the settlement of a federal antitrust enforcement action against Microsoft more than eight years ago. The trial began in October in federal court in Salt Lake City. Novell is now a wholly owned subsidiary of The Attachmate Group, the result of a merger that was completed earlier this year.
NEW YORK (AP) — With about week until Christmas, optimism is rising that holiday sales will be better than originally forecast. Still, the season isn’t expected to end up being stellar. ShopperTrak, a Chicago-based research firm, announced Friday it’s upgrading its holiday sales forecast, a day after the nation’s largest retail group boosted its outlook. ShopperTrak now believes that sales for the November and December period combined will rise 3.7 percent compared with the same period a year ago. That’s up from the original 3 percent growth forecast issued in September when the economy’s recovery looked more uncertain. The 3.7 percent forecast is still below the 4.1 percent growth registered in the year-ago period, according to ShopperTrak’s measure. Bill Martin, founder of ShopperTrak, says a decent November and a steady pace in sales so far in December warranted the upgrade. “We believe that the holiday season is deserving of more optimism,” he noted. He added that after a big spending spree over the Thanksgiving weekend — the official start of the holiday season — stores saw a typical lull, but sales didn’t plummet the way they have during some of the weaker holiday seasons in the past. The National Retail Federation said Thursday it now expects holiday sales to rise 3.8 percent, up from the 2.8 percent forecast made in early October. The projected gain is still below the 5.2 percent pace seen during the holiday 2010 season from the prior year, but it’s well above the 2.6 percent average increase over the past 10 years.
Market decline takes shine off 2011 IPOs
NEW YORK (AP) — This was supposed to be the year of the IPO comeback. Six months into 2011, the market for initial public offerings was stronger than before the recession. The number of companies looking to raise money through new stock offerings was on pace for a decade high. Shares of companies that had gone public earlier in the year, on average, had posted gains. But after that strong start, the market for new
stock offerings fizzled in 2011 as the prospect of a global slowdown and a prolonged European debt crisis battered financial markets. High-profile Internet companies like Groupon, LinkedIn and Zynga — which went public Friday — attracted attention. But overall, companies didn’t raise as much as they hoped for through IPOs. Main Street investors, who generally don’t have access to IPO shares until after they start trading, were likely the biggest losers.
States get a say on health benefits in Obama’s law
WASHINGTON (AP) — The Obama administration on Friday rolled out a benefits framework for millions of people who will get private insurance through the health care overhaul, but states will decide the specifics. The new law calls for the federal government to set a basic benefits package for private insurance. But that’s tricky territory for the administration as it tries to avoid the “big brother” label on health care. Obama will be defending his signature domestic law on two fronts next year — before the Supreme Court and the voters. Friday’s proposal from Health and Human Services Secretary Kathleen Sebelius allows states to retain some leeway. Private insurance traditionally has been regulated at the state level, and many state officials don’t like having to answer to Washington. The basic benefits package could eventually affect 90 million people, HHS said. That includes those who would gain private insurance thanks to the health care law, as well as many more currently enrolled in small employer and individual plans. The new proposal would let
states pick a benefits package from several federally approved options. Those range from benefits offered to federal and state employees to the most popular small business plans in the state and to a large health maintenance organization, or HMO. “The proposal we’re putting forward today reflects our commitment to giving states the flexibility they need,” Sebelius said. It’s a prickly relationship, with 26 states asking the Supreme Court to toss out the law. If a state doesn’t want to pick benefits, the default will be the package available through the largest small business plan in that state. Initial state reaction was positive. “Quite frankly, this was a very smart approach for HHS,” said Kansas Insurance Commissioner Sandy Praeger. “It builds on existing state law.” Praeger, a Republican, chairs the health care committee of the National Association of Insurance Commissioners. Starting in 2014, millions of people now uninsured will be able to buy private coverage in new state markets; taxpayer subsidies would help with premiums.
Insurers wanting to participate in the new state health insurance exchanges will have to offer at least the federally approved “essential benefits package.” Business groups and consumer advocates are watching closely because they expect the federal government’s decisions to set new national standards for health insurance. At issue is the right balance between affordable coverage and comprehensive benefits. Under the law, the benefits package must include such fundamentals as inpatient and outpatient care, emergency services, maternity and childhood care, prescription drugs, preventive screenings and labs. It must also cover mental health and substance abuse treatment, as well as rehabilitation for physical and cognitive disorders, and dental and vision care for children. Such additional benefits are often not fully covered by frugal plans that are now the best that many small businesses can afford. Traditionally regulated by the states, private insurance benefits vary widely across the country. Large companies can opt out of most state rules, although they
AP Photo
In this Oct. 31 file photo, Health and Human Services Secretary Kathleen Sebelius is seen in the Oval Office at the White House in Washington. The Obama administration is rolling out a health benefits framework for millions of Americans who will get private insurance through the health care overhaul — and states get to decide the specifics. usually offer comprehensive coverage. Consumer advocates had hoped Obama would set a robust standard for the whole nation. But his administration only met them part way.
“The essential health benefits package will for the first time define a minimum standard for health insurance coverage,” said Stephen Finan of the American Cancer Society Cancer Action Network.