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SEC Charges Former Fannie and Freddie CEOs With Fraud

The Securities and Exchange Commission has charged six former executives from Fannie Mae and Freddie Mac with securities fraud.

The Securities and Exchange Commission (SEC) said on Friday that it sued three former Fannie Mae executives and three executives at Freddie Mac.

According to the SEC, the executives did not properly disclose to investors the extent of their exposure to unsafe subprime mortgage debt.

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"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," Robert Khuzami, Director of the SEC's Enforcement Division, said.

These fabrications "misled the market about the amount of risk on the company's books," Khuzami added.

From Freddie Mac, former CEO Richard Syron, former Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the Single Family Guarantee business Donald J. Bisenius, were charged with securities fraud.

From Fannie Mae, former CEO Daniel Mudd, former Executive Vice President of its Single-Family Mortgage business, Thomas A. Lund, and Chief Risk Officer Enrico Dallavecchia were charged.

CNBC obtained a statement from former Fannie Mae CEO Daniel Mudd, who said the SEC is “wrong”:

"This is a lawsuit that should never have been brought in the United States of America. Every piece of material data about loans held by Fannie Mae was known to the United States government and to the investing public. The SEC is wrong, and I look forward to a court where fairness and reason - not politics - is the standard for justice."

The SEC is seeking a surrender of gains resulting from the misinformation given to investors along with the interest, financial penalties and to ban the executives charged from serving as directors on other company boards.

According to the SEC, both firms have agreed to cooperate with the regulation agency and have entered non-prosecution agreements.

The civil charges were filed in two separate lawsuits in Federal Court in New York City.

Freddie and Fannie both own or guarantee nearly half of U.S. mortgages.

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