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Former Freddie Mac Executives Settle With SEC Over Claims of Subprime Loan Fraud

gavel [1]Former Freddie Mac [2] CEO Richard Syron and two other former executives from the GSE have agreed to a settlement with the U.S. Securities and Exchange Commission (SEC [3]) to resolve claims of fraud regarding Freddie Mac's subprime exposure before the financial crisis, according to media reports [4].

According to the reports, the settlement was disclosed in court papers filed in the U.S. District Court in the Southern District of New York [5] in Manhattan. Under the terms of the settlement, Syron will pay $250,000. Former chief business officer for Freddie Mac, Patricia Cook, will pay $50,o00, and Freddie Mac's former VP of credit policy, Donald Bisenius, will pay $10,000, according to the report. Also under the terms of the settlement, there was no disgorgement, civil penalty, or admission of wrongdoing on the part of any of the parties, according to a press release from Zuckerman Spaeder, the firm that represented defendant Patricia Cook.

"We are extremely pleased with this resolution," attorney Steven Salky of Zuckerman Spaeder said. "While at Freddie Mac or elsewhere, Ms. Cook has never signed the forms she now has agreed not to sign. In addition, she is not paying anything out of pocket; insurance will pay her agreed-to donation. Extensive discovery of facts led to this favorable outcome."

In a statement, Bisenius said, "I am gratified that the SEC has agreed to end its case against me. The dismissal of the case today under these terms vindicates me completely."

The three former Freddie Mac executives were among six ex-GSE executives (including former Fannie Mae CEO Daniel Mudd) sued by the SEC in December 2011 for allegedly misrepresenting to investors the amount of exposure to subprime loans the GSEs had incurred. Bloomberg reported that in one SEC complaint, Freddie Mac executives had said during 2007 and 2008 immediately before financial crisis, the agency's exposure to subprime loans was between $2 billion and $6 billion when it was actually as high as $244 billion. The SEC also claimed that during that same period, 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.

Syron joined Freddie Mac in 2003. Both he and Mudd were ousted from their respective positions in September 2008 when Freddie Mac and Fannie Mae were taken into conservatorship by the Federal Housing Finance Agency. The three former Fannie Mae executives named in the SEC lawsuit are currently awaiting trial.