Former Freddie, Fannie CEOs deceived investors over subprime exposure: suit

December 16, 2011 02:20PM

A lawsuit filed in Manhattan federal court today accuses former executives of Freddie Mac and Fannie Mae, including former CEOs of both firms, of misleading investors about their exposure to subprime mortgages, the Wall Street Journal reported.

Former Freddie CEO Richard Syron and former Fannie CEO Daniel Mudd, are among the six executives named in the suit, the Journal said. Earlier this year, the SEC had informed the executives it planned to pursue actions against them.

The suit was timed to coincide with Fannie and Freddie entering into agreements with the commission to avoid civil prosecution, the Journal said. In the agreements, Fannie and Freddie will “accept responsibility for the conduct and not dispute the SEC’s allegations, without admitting or denying wrongdoing,” the SEC told the Journal. Fannie and Freddie will also assist in the case against the executives as part of the agreement.

“Material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and [they] misled the market about the amount of risk on the company’s books,” said Robert Khuzami, director of the SEC’s enforcement division. [WSJ]