SEC Action: Better Late Than Never

Robert Khuzami / REUTERS

Now that American taxpayers have shelled $151 billion – yes billion – to prop up mortgage giants Fannie Mae and Freddie Mac, the government is finally holding former executives at the two companies accountable.

The Securities and Exchange Commission has accused six former executives of misleading investors by under-reporting the risk in Fannie and Freddie’s subprime mortgage portfolio that, in part, contributed to the financial crisis.

The case, filed in U.S. District Court in Manhattan, names the former chief executives of both the companies, and four others.  Robert Khuzami, head of enforcement for the S.E.C., said that by understating the risk in the mortgage-backed securities sold by the two companies, the executives misled investors.

“All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interests of our country’s investors,” said Khuzami in a press conference.

One of the many contentions in the Government’s complaint is that some of the executives falsely claimed in 2007 that their businesses had almost no exposure to ultra-risky subprime loans, when in fact they did. Subprime mortgages are held by the least credit-worthy homeowners and have a high chance of defaulting. Fannie and Freddie are quasi-government agencies that purchase pools of mortgages from banks and package them into mortgage-backed securities that it sold to investors.  When the subprime mortgages later collapsed, so did the value of the investors’ securities as well as shares of Fannie and Freddie.

Federal regulators have come under sharp criticism for failing to detect the financial crisis, and then for doing little to punish culprits. Spokesmen for the two most prominent of the defendants – Daniel H. Mudd and Richard F. Styron — said that the S.E.C. case was fatally flawed and that there had been sufficient disclosure of risk to investors by both Fannie and Freddie.

Sweep to SEC Brings Crisis-Era Suits

Bradley Manning (C) is escorted from the courthouse at Fort Meade, Maryland after his Article 32 hearing December 16, 2011. / REUTERS

Bradley Manning, the former intelligence analyst who is accused of leaking classified documents to the whistleblower website WikiLeaks, made his first court appearance at a pretrial hearing in a military courtroom. Manning faces a possible life sentence. The Government has charged Manning with over 20 different counts, most relating to the handling of classified material.

The most serious charge against Manning, a US Army private, is aiding the enemy, which is a capital offense, although the Government is not seeking the death penalty.  The purpose of the hearing was to determine whether there is enough evidence against Manning to warrant a full court martial.

The court hearing is the first time that Manning has appeared in public since his arrest 18 months ago.  Manning’s attorney opened with a dramatic demand that the judge in the case – known as the investigating officer – recuse himself. The attorney claims that the investigating officer is biased because he has worked for the U.S. Department of Justice, which is conducting a criminal investigation into the WikiLeaks website and into its founder Julian Assange.

After consulting with his attorney, the investigating officer said that he was capable of ruling impartially and would not recuse himself from the case.  Manning, 23, came dressed in military fatigues and his only comments were in response to questions affirming that he understood the charges against him.

Defenders of Manning stood vigil outside Fort Meade, the military base where the hearing took place, and planned a march in his support this weekend. Among those expected to appear on Manning’s behalf is Daniel Ellsberg, the whistleblower who leaked the Pentagon Papers.

Critics of Manning say that the release of the classified documents put lives at risk, though supporters argue there is no evidence to support the claim. One of the classified materials leaked was a video showing a 2007 helicopter attack that killed a dozen Iraqis and two Reuters journalists.

Sweep to Manning makes first court appearance

Meantime, in London, Britain’s Supreme Court agreed to hear the appeal of Assange, who is fighting extradition to Sweden over sex crime allegations.

Sweep to WikiLeaks’ Assange gets U.K. high court hearing

He was once the home run king.  Now Barry Bonds, the former San Francisco Giant, may be stuck at home for a while.

Bonds was sentenced to two years probation and 30 days home confinement over his April conviction for lying under oath about his use of illegal steroids.  It could have been much worse for Bonds: Prosecutors had been looking for a 15-month prison term.

The 47-year old Bonds might not have to begin serving his term yet.  The judge immediately stayed the sentence to allow Bond’s attorneys a chance to appeal. This came over the objection of prosecutors, who had been looking into the use of performance-enhancing steroids by professional athletes.

Given the lavish homes of many professional athletes, a month-long home confinement might not be much of a punishment at all.

Sweep to Barry Bonds sentenced to two years probation, 30 days home confinement

Leslie Wayne

Leslie Wayne

Leslie Wayne, former senior editor at 100Reporters, is an award-winning business reporter, formerly at The New York Times. Ms. Wayne joined The Times in 1981 and has covered Wall Street, banking industry regulatory reform, municipal finance scandals and, most recently, the aerospace and military industries. Ms. Wayne has an M.B.A. in finance from Columbia Business School and was also a Knight-Bagehot Fellow in Business and Economic Journalism.