According to a New York Times article by Gretchen Morgenson, since Fannie Mae and Freddie Mac failed in the summer of 2008, during the height of the credit crisis, taxpayers have spent approximately $160 million defending suits against the two entities and their former executives.
The bulk of the cost has been spent defending Fannie Mae and its officials in securities suits and government investigations regarding alleged accounting irregularities that occurred several years before the subprime lending crisis erupted. Worse for the taxpayers, the legal costs related to this actions has shown little sign of easing up. Also, while it is typical for corporations to cover legal fees for top executives…. unless an executive is found to be at fault, in this instance, if the former executives are found liable, the government can try to recoup the costs.
Well before the credit crisis forced the government to rescue Fannie and Freddie, accounting irregularities had surrounded both companies. Shareholders of Fannie and Freddie sued to recover stock losses incurred after the accounting irregularities were discovered and the stock prices plummeted. Also, Fannie Mae also settled a fraud suit brought by the Securities and Exchange Commission without admitting or denying the allegations; the company paid $400 million in penalties.
After the government moved to back Fannie and Freddie, the Federal Housing Finance Agency agreed to continue paying to defend the executives, with the taxpayers covering the costs. If the former executives are found liable, they would be asked to repay the government for the costs. However this may prove difficult as the executives likely don’t have the money to repay the taxpayers.
Meanwhile, individual investors who were sold Fannie Mae and Freddie Mac preferred stock and other securities have filed arbitration claims against their brokers to recoup their losses. The investors and their attorneys allege their was sufficient news surrounding these entities well before they failed which should have prompted the brokerage firms to not recommend the securities for purchase or warn their clients that already held them in their accounts.
The attorneys at Colling Gilbert Wright & Carter are currently investigating and filing claims in FINRA arbitration seeking to recover losses associated with Fannie Mae and Freddie Mac investments. If you lost money in a the securities of one of these Government-sponsored Enterprises (GSE), please contact our offices for a free case evaluation.