Two former Fannie Mae executives have agreed to settle with the Securities and Exchange Commission (SEC) to resolve claims of fraud regarding Fannie Mae's subprime exposure before the financial crisis, according to media reports.
Enrico Dallavecchia, Fannie Mae's former chief risk officer, and Thomas Lund, former EVP of Fannie Mae's single-family lending unit, were sued by the SEC in 2011. The Commission's lawsuit claimed that during the years 2007 and 2008 immediately before the crisis, Fannie Mae executives said their exposure to subprime and riskier mortgage loans was about $4.8 billion when it was about 10 times greater, according to a report from the Wall Street Journal.
The two men settled for a combined $35,000, a relatively small sum considering the SEC's charges. The settlement money will not be paid to the SEC, however; Lund and Dallavecchia agreed to pay $10,000 and $25,000, respectively, to an account designed to accept donations to the U.S. government, according to reports.
"Tom Lund has been vindicated," said Michael Levy, attorney for Thomas Lund. "After investigating for three years, litigating for another three years, deposing 50 witnesses, and hiring four experts, the SEC concedes that it has not prevailed. Mr. Lund will not contribute a dime from his own pocket and has agreed only that he will refrain (for 12 months) from signing things that he never signed in the past and has no intention of signing in the future. The reason for this result is obvious: Mr. Lund did not do anything wrong."
Spokespeople from the SEC and Fannie Mae both declined to comment via email to DS News on the outcome of the case.
Both Syron and Mudd were ousted from their respective positions with Freddie Mac and Fannie Mae in September 2008 when the Enterprises were taken into conservatorship by the Federal Housing Finance Agency.
Some have questioned the relatively small amount of the Lund and Dallavecchia settlements, along with the fact that Fannie Mae has agreed to pay and that the $35,000 is considered a donation to the government and not a penalty—especially in light of the announcement made by the U.S. Department of Justice earlier in September stating that it will pursue the prosecution of individual employees, and not just their companies, for their role in precipitating the financial crisis in 2008.