[1]Former Fannie Mae [2] CEO Daniel Mudd has urged a federal judge to dismiss a lawsuit filed against him by the Securities and Exchange Commission (SEC [3]) accusing Mudd of shielding risky subprime loans from investors in the years immediately before the financial crisis hit in 2008.
Mudd, who was the CEO at Fannie Mae from 2005 to 2008, is one of six former GSE executives (three each from Fannie Mae and Freddie Mac [4]) the SEC sued in December 2011 [5], claiming they misrepresented to investors the amount of exposure to subprime loans the GSEs had incurred. The Commission's lawsuit alleges that during the years 2007 and 2008 immediately before the crisis, Fannie Mae executives said their exposure to subprime [6] and riskier mortgage loans was about $4.8 billion when it was about 10 times greater.
A lawyer for Mudd asked Judge Paul Crotty in the U.S. District Court of the Southern District of New York to throw the suit out because he believes the SEC has failed to prove its claims against Mudd.
“He didn't do anything wrong, and the SEC’s case is unworthy,” attorney John Keker said in an email to DS News. “We hope the judge will agree and dismiss the case.”
SEC spokesperson Judith Burns told DS News the Commission declined to comment beyond the court filing and what was said in court.
“He didn't do anything wrong, and the SEC’s case is unworthy.”
John Keker, Attorney for Daniel Mudd
The other five former GSE executives sued by the SEC have all settled their cases out of court; Mudd is the last one to resolve his case. Enrico Dallavecchia, Fannie Mae's former chief risk officer, and Thomas Lund, former EVP of Fannie Mae's single-family lending unit, settled in September 2015 [7] for a combined total of $35,000. The relatively small amount of the settlement was surprising to many [8], especially considering that the U.S. Department of Justice [9] made an announcement [10] earlier that month stating that it plans to pursue the prosecution of individual employees, and not just their companies, for their role in precipitating the financial crisis in 2008.
The three Freddie Mac executives sued by the SEC, former CEO Richard Syron, former chief business officer Patricia Cook, and former VP of credit policy, Donald Bisenius, settled for a combined $310,000 in April 2015 [11] with no admission of wrongdoing. Syron agreed to pay $250,000, Cook agreed to pay $50,000, and Bisenius agreed to pay $10,000.
Both Syron and Mudd were ousted from their respective positions with Freddie Mac and Fannie Mae in September 2008 when the Enterprises were taken into conservatorship by the Federal Housing Finance Agency.
In March 2015, Mudd took the stand [12] in the trial of Nomura Holdings, which was sued by the FHFA in 2011 for negligence in mortgage-backed securities underwriting. Mudd testified that certain macroeconomic factors, including housing prices, could possibly have an impact on investments such as mortgage-backed securities and that to his knowledge, no one at Fannie Mae could have accurately predicted the extent of the housing crisis. FHFA had been seeking $1.1 billion in damages; the judge ruled in favor of FHFA and ordered Nomura to pay $839 million.