The Securities and Exchange Commission’s high-profile case against several former Freddie Mac executives over allegedly misleading investors about the quality of subprime mortgages is now over, and it ended rather quietly.
According to multiple reports, including the Wall St. Journal, the SEC reached a settlement agreement with former Freddie Mac CEO Richard Syron and former senior executives Patricia Cook and Donald Bisenius, with the parties agreeing to penalties far less harsh than the SEC originally sought.
In the initial complaint, the SEC alleged that Syron, Cook and Bisenius violated anti-fraud provisions of U.S. securities laws by failing to accurately represent Freddie Mac’s subprime mortgage portfolio and the GSE’s overall exposure to riskier mortgages denoted as ‘subprime’ to investors, according to court records.
The Wall St. Journal report details the nature of the sanctions against the former Freddie executives. From the WSJ report:
The SEC had sought financial penalties against the executives and an order barring them from serving as officers and directors at other companies.
Instead, the executives agreed for a limited time not to sign certain reports required by chief executives or finance chiefs and to pay a total of $310,000 to a fund meant to compensate defrauded investors. Those amounts will be paid by insurance paid by Freddie Mac that covered the executives.
The case against Syron, Cook and Bisenius played out in court over the last several years, but the case is over now.
Again, from the WSJ:
The agreement said both sides disputed the degree to which Freddie Mac’s subprime disclosures were susceptible to misinterpretation on the question of how Freddie Mac quantified its exposure to subprime loans. It also says both sides agreed to the settlement “without conceding the strengths and weaknesses of their respective claims and defenses.”
The Tuesday agreement acknowledges “there was no one universally accepted definition of subprime that was used by market participants” in 2007 and 2008, the time period at issue in the lawsuit.”