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    Freddie Mac misstated $5 billion in earnings between 2000-2002 by overstating earnings in 2001 by $1 billion and understating them in 2000 and 2002 by $6 billion total. This violated its mission to provide affordable housing. The Office of Federal Housing Enterprise Oversight failed to properly monitor Freddie Mac and ensure accurate financial reporting. As a result, Freddie Mac restated its financials and paid $125 million in civil fines while executives faced penalties.

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    Group 5 Presentation

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    GervinBulatao
    132 views10 pages
    Freddie Mac misstated $5 billion in earnings between 2000-2002 by overstating earnings in 2001 by $1 billion and understating them in 2000 and 2002 by $6 billion total. This violated its mission to provide affordable housing. The Office of Federal Housing Enterprise Oversight failed to properly monitor Freddie Mac and ensure accurate financial reporting. As a result, Freddie Mac restated its financials and paid $125 million in civil fines while executives faced penalties.

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    Freddie Mac misstated $5 billion in earnings between 2000-2002 by overstating earnings in 2001 by $1 billion and understating them in 2000 and 2002 by $6 billion total. This violated its mission to provide affordable housing. The Office of Federal Housing Enterprise Oversight failed to properly monitor Freddie Mac and ensure accurate financial reporting. As a result, Freddie Mac restated its financials and paid $125 million in civil fines while executives faced penalties.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    132 views10 pages

    Group 5 Presentation

    Uploaded by

    GervinBulatao
    Freddie Mac misstated $5 billion in earnings between 2000-2002 by overstating earnings in 2001 by $1 billion and understating them in 2000 and 2002 by $6 billion total. This violated its mission to provide affordable housing. The Office of Federal Housing Enterprise Oversight failed to properly monitor Freddie Mac and ensure accurate financial reporting. As a result, Freddie Mac restated its financials and paid $125 million in civil fines while executives faced penalties.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
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    Group 5 Presentation

    Freddie Mac
    2003 Scandal
    Freddie Mac
    • Chartered by Congress in 1970
    • Was established for the mission of “To provide
    liquidity, stability and affordability to the U.S.
    housing market
    • Are backed and supported by the Government by
    lending funds at low interest rate.
    • Are exempted from state and local taxes.
    • Purchases mortgages and sells them to investors
    Fraudulent Activity
    • Mistated $5 Billion
    – Over stated $1 Billion in 2001
    – Understated $6 Billion between 2000 – 2002

    What Actually Happened?


    • As part of its housing mission Freddie Mac is required to make
    its loans for these three categories.

    Affordable Low-income
    Urban Areas
    Housing Families

    50% 30% 20%


    What Actually Happened?
    • But for years, US Department of Housing and Urban
    Development (HUD) has allowed it to invest primarily in the
    more profitable business of middle class home mortgages.
    Thus, the company gains from this

    The act of allowing


    the company to do
    so defraud its Housing Goal
    stated affordable
    housing goals. DEFRAUD
    What Actually Happened?
    • The Office of Federal Housing Enterprise Oversight (OFHEO)
    failed to monitor Freddie’s activities.
    • In order to meet Wall Street’s desired objective of steady
    earnings growth, the company underreported the earning
    for 2000-2002.
    • The company then restated its financial statements in
    November, 2003, revealed that its cumulative earnings for
    the years 2000-2002 were higher than what it had reported
    originally.
    What Actually Happened?
    • The restated financial statement shows that the company
    had inflated its earnings for 2001 by nearly $1 billion.

    • The one year of inflated earnings adversely changes the


    character of the accounting controversy because it reflects
    an even more changeable true earnings profile.

    • This fraud contributes to serious unfavorable effect to the


    economy as a whole.
    The solutions
    • Freddie Mac paid $125 million civil fine in 2003 in a
    settlement with Office of Federal Housing Enterprise.

    The actions taken by Office of Federal Housing


    Enterprise Oversight (OFHEO) over the company are:
    • Freezing the compensation packages of former and present
    executives.
    • Expelling the former CEO and the general counsel
    • Charging a civil money penalty on the CEO, CFO and general
    counsel.
    • Starting the process of terminating the former CEO and the
    CFO for cause.
    Main Players
    David Glenn
    Former President & Chief Operating Officer

    • US $250,000 civil penalty


    • US $150,000 disgorgement

    Vaughn Clarke
    Former Chief Financial Officer

    • US $125,000 civil penalty


    • US $29,227 disgorgement

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