Former Freddie Mac executives fail to escape subprime fraud case

Former Freddie Mac CEO Richard Syron and other executives serving during his tenure failed to escape a pending case filed by the Securities and Exchange Commission over subprime mortgages.

In the initial complaint, the SEC alleged that Syron and former senior executives Patricia Cook and Donald Bisenius violated anti-fraud provisions of U.S. securities laws by failing to accurately represent Freddie Mac’s subprime mortgage portfolio and the GSE’s overall exposure to riskier mortgages denoted as ‘subprime’ to investors, according to court records. 

Syron and Cook both moved to get the claims against them dismissed.

In response, U.S. District Court Judge Richard Sullivan dismissed a minor part of the case against the two executives, while keeping the meat of the SEC’s case against the former GSE leaders alive.

One claim related to Section 17(a)2 of the Securities Exchange Act was thrown out after the judge determined the SEC failed to allege Syron and Cook obtained money in connection from stock offerings tied to the subprime mortgages in question.

Yet, the hook of the case was kept alive with the court holding that “the SEC has sufficiently alleged that Freddie Mac’s disclosures and Syron and Cook’s statements misrepresented the extent of single-family’s exposure to subprime loans.”

The court’s decision outlines several instances when the SEC alleges it was clear the executives knew the extent of Freddie Mac’s subprime exposure.

One event occurred as early as May 2006 when “Syron and Cook attended meetings of Board Committees,” the court decision said.

During those meetings “attendees were (allegedly) told that Freddie Mac was purchasing higher-risk loans and loosening underwriting standards,” court records suggest.

The SEC claims the former executives misled investors about the company’s subprime mortgage exposures between the dates of March 23, 2007 and Aug. 6, 2008.

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