Remember Franklin Raines? In December 2004 he and Timothy Howard were very
much in the news as they "retired" or "resigned" or were fired, depending on
which version one was reading as CEO and CFO of Fannie Mae.
Their sudden unemployment followed probes, lawsuits, and audits that revealed
that Fannie Mae had cooked the books over a three year period of time in such
a way as to "smooth" income and expenses. One reason suspected at that time
was to ensure that the Corporation's net income every year was sufficient to
match the benchmarks necessary to trigger large performance bonuses to its executives.
Fannie Mae has been engaged, since that time, in an enormously expensive re-examination
of its books dating back to 2001 and has not filed the necessary financial statements
with the Securities and Exchange Commission in nearly two years.
On the way out the door, Raines and Howard collected severance packages
that turned more than a few heads.
At that time it was reported here that Raines would receive pension payments
of $114,393 per month for the rest of his and his surviving
spouse's life and Howard would receive $36,071. In addition, both men were to
receive lifetime medical and dental coverage for themselves, their wives, and
any dependents under age 21 and corporation paid premiums on substantial life
insurance policies. Mr. Raines' medical insurance premiums were to be paid;
while Mr. Howard was to pay at the reduced rates provided to all retirees.
As of the date his resignation was requested, Mr. Raines held vested and exercisable
options to purchase a total of 1,628,071 shares of Fannie Mae
common stock. The option price was exceeded by actual stock value by $5,545,270
and his"retirement" triggered an additional package of options to purchase some
380,000 shares at varying prices. The options are vested and will expire between
May 2008 and January 2014. Mr. Howard held vested options that, if exercised
immediately, would reap $4,395,864. Both men requested that they be allowed
to time their actual separations so as to increase the value of their pensions
and their options.
Last month the Office of Federal Housing Enterprise Oversight (OFHEO), the
division of the Department of Housing and Urban Development charged with regulating
Fannie Mae and its sister organization Freddie Mac, issued a scathing report
on Fannie's financial manipulations, stating outright that some of the
motivation was to protect those executive bonuses.
The report stated that Raines had earned more than $52 million in performance
and other bonuses from 1998 through 2003. This was in addition
to some $38 million in salaries and other compensation.
Now the acting director of OHEO has made it clear that Fannie Mae had better
act to retrieve some of that bonus money from Raines and others or the federal
government will do it for them.
James B. Lockhart, testifying at a Senate hearing weighing his confirmation
as permanent director of the agency said that the Corporation owed it to its
shareholders to try to get restitution of some of the bonus money. He did not
name any officers at that hearing but earlier in the week, while testifying
at a House hearing he did blame Raines and other senior company officials for
the accounting scandal and repeated allegations that the irregularities were
designed to protect their bonuses.
News accounts did not note if Lockhart was also looking at the separation packages
given to the two men.
Current Fannie Mae CEO Daniel Mudd is among other officers whose compensation
during the questionable period is also being reviewed. He earned a total of
over $26 million from 2000 to 2003.
In separate news, Gannett News Service announced that it had
obtained documents under the Freedom of Information Act that indicated that
Freddie Mac had invested heavily in efforts to convince federal legislators
not to increase regulation of it and Fannie Mae.
Faith Bremner, writing for Gannett stated that a "major part of Freddie
Mac's strategy... was to hold fundraising events for key lawmakers."
From 2000 to 2003 the corporation's lobbyists hosted 70 fundraising dinners
for 52 lawmakers and raised $1.7 million for House Financial Services Committee
Chairman Mike Oxley (R-Ohio), other members of his committee and Republican
leaders; $189,500 for Oxley alone. Freddie Mac maintains that its lobbyists
personally sponsored the events and the company had nothing to do with them.
Ms. Bremner said that lobbyists bragged in their performance evaluations about
their successes in fighting reform legislation such keeping former Senate Banking
Committee Chairman Phil Gramm (R-Texas) "on the sidelines" at a
time the committee was considering legislation to rein in Fannie and Freddie.
Freddie's lobbyists held a fund raising dinner for Gramm on the very day
that the committee held hearings on the bill.
Further, the corporation held hundreds of "ribbon-cutting" events
with lawmakers in their districts that promoted charities and housing projects,
boosting both Freddie's and the lawmakers images and worked with lawmakers
and staffs from both parties to create witness questions for hearings that were
favorable to Freddie Mac.
As reported here earlier, some of Freddie's election activities drew a
record $3.8 million dollar fine in April from the Federal Elections Commission.