WASHINGTON — Former Fannie Mae Chief Executive Franklin Raines and two other top executives have agreed to a $31.4-million settlement with the government for their roles in a 2004 accounting scandal.
A civil lawsuit in December 2006 accused Raines, former Chief Financial Officer Timothy Howard and former Controller Leanne Spencer of manipulating earnings over a six-year period at the company, the largest U.S. financer and guarantor of home mortgages.
Raines, a prominent Washington figure who was President Clinton's budget director, is relinquishing company stock options, proceeds from stock sales and other benefits. His part of the settlement amounts to $24.7 million.
The stock options were valued at $15.6 million at the time they were issued to Raines, allowing him to buy shares at $77.10 and higher. Fannie Mae shares have been battered by the turbulence in the housing market, closing Friday at $28.55 -- draining the options Raines was returning of value, people familiar with the settlement said.
Proceeds from Raines' sale of his company stock, valued at $1.8 million, will be donated to programs that help homeowners facing foreclosure or other initiatives designed to boost homeownership.
"While I long ago accepted managerial accountability for any errors committed by subordinates while I was CEO, it is a very different matter to suggest that I was legally culpable in any way," Raines said in a statement. "I was not. This settlement is not an acknowledgement of wrongdoing on my part, because I did not break any laws or rules while leading Fannie Mae."
Howard is settling for a total of $6.4 million, including stock options valued at $5.2 million when issued, and Spencer $275,000.
The deal was announced Friday by the Office of Federal Housing Enterprise Oversight, the agency that oversees Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies.
"OFHEO's mission is to ensure that [Fannie and Freddie] operate in a safe and sound manner," the agency's director, James B. Lockhart, said in a statement. "That cannot occur without corporate management providing prudent and responsible leadership and setting the appropriate ethical and overall 'tone at the top.' "
Fannie and Freddie both had multibillion-dollar accounting scandals that brought record civil fines against them in settlements with the government.
The regulators alleged an accounting fraud at Washington-based Fannie Mae that included manipulations to reach quarterly earnings targets so that Raines, Howard, Spencer and other executives could pocket hundreds of millions in bonuses from 1998 to 2004.
The three executives had disputed the charges, calling them politically motivated.
Raines and Howard were swept out of office in December 2004 in the accounting fiasco at Fannie Mae. Two years later, the company announced a financial restatement for 2001 through June 30, 2004, that erased $6.3 billion in previously reported profit.
Fannie Mae paid a record $400-million civil fine in a settlement with OFHEO and the Securities and Exchange Commission in May 2006. It also agreed to make top-to-bottom changes in its corporate culture, accounting procedures and ways of managing risk.