Thursday, February 23, 2006

Fannie Mae Internal Investigation Report

Mortgage giant Fannie Mae released the report of an internal investigation led by former Senator Warren Rudman (and his law firm, Paul Weiss) on the company's accounting problems that came to light in 2004.  The report indicates that there were consistent problems over a number of years in how the company manipulated its accounting for mortgages and derivatives as part of an effort to smooth out its earnings from quarter to quarter, and various internal control weakness that permitted the improper accounting.  The report (summary here and full report here, all 2652 pages of it in case you have insomnia) points the finger at former CFO Timothy Howard and Controller Leanne Spencer as primarily responsible for the accounting problems, although former CEO Franklin Raines comes in for criticism for the company's culture, which gave new meaning to the word "arrogant."  The report accuses Howard of not cooperating in the investigation by refusing requests for interviews, and asserts that Spencer failed to disclose relevant documents in her files to the lawyers conducting the investigation and stopped cooperating at that point.  While Fannie Mae will continue to be scrutinized closely on Capitol Hill, it is unlikely the firm will face any criminal charges.  Whether Howard or Spencer might come under scrutiny from federal prosecutors is another question. (ph)

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Fraud, Investigations | Permalink

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