Leaders at Fannie Mae and its conservator, the Federal Housing Finance Agency, said legal fees extended to former executives have ballooned because of delays and hearings brought on by the plaintiffs in cases against them. In a hearing before the House subcommittee on oversight and investigations, Fannie Mae CEO Michael Williams and FHFA Acting Director Edward DeMarco launched their defense of nearly $160 million in legal fees extended to Fannie and Freddie Mac former executives after the two companies went into conservatorship in September 2008. In addition to saying these indemnifications were mandatory, DeMarco, Williams and their legal counsels in attendance at the hearing said the plaintiffs have been excessive in their suits. One of the largest, a securities fraud case involving pension funds that lost money, was brought on by Ohio Attorney General Mike DeWine more than six years ago. DeWine said in testimony that between 30 and 35 lawyers were brought in to represent Fannie’s former CEO Frank Raines, former Chief Financial Officer Tim Howard and former Controller Leanne Spencer. He even said more than 13 lawyers were brought in for a hearing in April. DeWine blamed Fannie for delays in the case, and noted that the judge in the case has raised issues with defendants for excessively delaying the case themselves. He said Raines has employed nine expert witnesses for himself alone, and said that because he made more than $91 million over a five-year period while CEO of Fannie Mae, he should be required to pay for his own legal fees. “Fannie Mae has been using taxpayer dollars to defend these executives,” DeWine said. “It’s wrong and unconscionable.” But DeMarco said his office cleared Fannie to pay for seven lawyers for that hearing, two for each executive and one for Fannie itself. Fannie Mae’s General Counsel Timothy Mayopoulos said of the 120 depositions, 100 have been organized by the plaintiffs, who have filed more than 1,500 pages of allegations. “Excess is the responsibility of the judge,” DeMarco said. “The plaintiff is ultimately suing for funds that are coming from the taxpayer. If successful it would come from the taxpayer. What we are trying to do is to respect everyone’s legal rights.” Rep. Randy Neugebauer (R-Texas), who conducted the initial investigation into the legal fees and who chairs the subcommittee said even though the FHFA believes it was obligated to extend the legal fees, they are not reasonable. “I think all of my colleagues can agree that these fees are not ‘reasonable’ given the mounting taxpayer exposure, the delay tactics of the defendants, and the fact that many of these securities-related lawsuits have no end in sight,” Neugebauer said. DeMarco did admit that there is no precedent for two companies in conservatorship to extend indemnification for legal fees and that he will file his testimony with the judge to raise concerns over expensive delays in the Ohio AG case. “There is no precedent for two major corporation who have spent two and a half years in conservatorship and at least a few more years before the matter is resolved,” DeMarco said. “There is nothing like it.” Write to Jon Prior. Follow him on Twitter: @JonAPrior
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