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Freddie Mac Gives Details of Its Profit Manipulations

November 22, 2003|From Reuters

Freddie Mac on Friday for the first time revealed details of its earnings manipulations in recent years, including billions of dollars of overstatements and understatements.

The long-awaited numbers from the accounting scandal included an admission that the No. 2 mortgage finance company overstated earnings by almost $1 billion in 2001 and understated profit for 2002, 2000 and earlier by more than $6 billion.

Freddie Mac shares rose 3 cents to $55.67 in New York Stock Exchange trading as investors found some closure to the scandal, in which financial results were massaged to show the steady growth favored on Wall Street. All three credit rating firms reaffirmed their AAA ratings on Freddie Mac's senior debt.

However, the company said quarterly and full results for 2003 would be delayed until June.

"We still have to wait six months for the 2003 quarter statements. It's not a complete story," said Hilary Hayes of Victory Capital Management.

Freddie Mac still faces investigations by regulators and law enforcement officials, and likely tougher government scrutiny.

Senior executives said that a new chief executive would be named by year-end and that a reshuffling of the board of directors was expected within 18 months; the firm also will make sweeping changes to its financial reporting and management.

The company's federal regulator, the Office of Federal Housing Enterprise Oversight, said in a statement: "More remains to be done by Freddie Mac, including completion of the 2003 quarterly financial statements and timely quarterly disclosures going forward."

The regulator itself is under fire for not acting sooner to address the turmoil at the firm.

Freddie Mac stunned investors in January when it announced that earnings would have to be restated, and again in June when it ousted its chief executive and other officers for allowing the accounting irregularities. An independent report said the company's chief operating officer, David Glenn, had altered pages in his diary before turning it over to investigators.

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