Freddie Mac Board 'Misled' By ManagersJul 23, 2003 | Ft.com
An independent report on the accounting scandal at Freddie Mac found that former executives deliberately massaged earnings and misled the board, but it absolved its new chief executive of wrongdoing.
The government-sponsored mortgage group on Wednesday published the report by Baker Botts, the law firm hired last year to investigate alleged earnings misstatements. Carried out with the co-operation of Freddie Mac, it found that to achieve steady earnings growth, senior management had encouraged the use of complex financial transactions that did not comply with accounting rules.
Gregory Parseghian, former chief investment officer appointed chief executive last month, was involved in some of the transactions.
However, James Doty, former Securities and Exchange Commission general counsel who led the probe, said Mr Parseghian was unaware that the transactions did not comply with accepted accounting principles. "[His] involvement was not wrongful involvement."
Shaun O'Malley, chairman of Freddie Mac's board, said directors had no questions about Mr Parseghian's integrity: "We stand fully behind him and believe he is absolutely the right person for the job." Freddie Mac last month parted company with three top executives, including Leland Brendsel, chief executive.
Wednesday's report revealed that senior managers had tried to hide information about certain financial transactions from the board. "Senior management's approach to governance was such that the information flow to the board was tightly scripted and controlled," it said.
The board is re-assessing Freddie Mac's internal accounting practices and corporate culture, and will undertake "a remediation process".
A handful of employees fewer than 10, according to Mr O'Malley have been fired from Freddie Mac's accounting division since last month, and further dismissals could follow.
Mr Doty side-stepped the question of whether Freddie Mac should fall under SEC disclosure rules. "Congress is going to take that up," he said. "Congress has this question before it. I'm sure it'll be sorted out by the company and Congress."