Both Freddie Mac [[ FNM]] and Fannie Mae (FNM) disclosed Monday morning that they have received grand jury subpoenas from federal prosecutors, as well as notice of an investigation by the Securities and Exchange Commission, according to published reports. Freddie Mac disclosed the investigations in a press statement on Monday; the Wall Street Journal noted that both GSEs were under investigation. The federal grand jury subpoena from the United States Attorney’s Office for the Southern District of New York is seeking information related to accounting, disclosures and corporate governance matters at both GSEs from January 1, 2007 to the present. The Staff of the Enforcement Division of the SEC has also demanded the mortgage giants to preserve documents, according to company filings. Both Freddie Mac and Fannie Mae have said they intend to cooperate fully with all inquiries.  The indictments, however, are all too familiar — seemingly an echo of 2003 and 2004, when allegations of accounting missteps and earnings management rocked both companies. In 2003, the Office of Federal Housing Enterprise Oversight accused Freddie Mac of ignoring accounting rules and loosening internal standards in order to manipulate its earnings to meet Wall Street’s expectations. “Weaknesses existed in every aspect of Freddie Mac’s accounting process,” the oversight agency said in a statement reported by MarketWatch in 2004. Shortly thereafter, in 2004, Fannie Mae met the same fate after it was suspected to have engaged in multi-billion-dollar accounting improprieties, as well. Both firms entered into settlement agreements and associated consent orders restricting their operations starting in 2005. Both companies also recently completed a multi-year restatement of previous years affected by the accounting scandal, and saw the terms of their consent orders with their regulator loosened significantly. News of the current investigations into suspected misconduct surrounding recent accounting practices came just after the announcement of a major management shakeup at Freddie Mac on Friday. The company’s three business lines — Single Family Credit Guarantee, Multifamily Sourcing and Investments and Capital Markets — will now report directly to Freddie Mac CEO David Moffett. The realignment eliminated chief business officer Patricia Cook’s role, and Freddie Mac announced she would be leaving the company as a result. Leaving as well will be Timothy McBride, who oversaw the company’s political and lobbying activities — Freddie saw its political activities halted when it was placed into conservatorship. Also leaving will be CFO Anthony “Buddy” Piszel; the GSE said it would begin an immediate search for his replacement. The realignment in structure at Freddie Mac and news of a widening probe into accounting activities is just the latest in ongoing upheaval at the company: both GSEs were seized by the government in the midst of the mortgage melt-down just a few weeks ago. For more information, visit http://www.freddiemac.com. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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