SEC Might Penalize Freddie Mac

Freddie Mac, the No. 2 U.S. mortgage finance company, said Wednesday that it might face civil action from the Securities and Exchange Commission for possible violations of securities laws.

The company said it had received a “Wells notice” indicating that SEC staff is considering recommending action against it to the full commission that may include a permanent injunction and monetary penalties.

Freddie Mac said the SEC was considering action against it for possible violations of securities law including sections relating to deceptive practices and insider trading.

The company said it has not yet decided on whether to respond to the SEC’s findings, which are the fruits of an investigation launched in June 2003 after the company removed its top three executives and details of accounting problems became public.

Freddie Mac was chartered by Congress in 1970 to help expand U.S. homeownership. It said in a statement that it was cooperating fully with the SEC investigation.

The company, through spokeswoman Sharon McHale, declined to comment further.

The company restated earnings upward by $5 billion over 2000-02 and earlier periods and did not report 2003 financial results until June.

It has told investors not to expect 2004 earnings reports until next March.

Freddie Mac has said it misapplied accounting rules so that it could smooth earnings to conform more closely to earnings expectations on Wall Street.

The restatements showed the company had both understated and overstated profit over the time periods in question.

Freddie Mac replaced five senior executives in all, including Chief Executive Leland Brendsel and the board’s first pick to replace him, Gregory Parseghian, as a result of the accounting scandal. Regulators fined the company $125 million, saying it had ignored accounting rules to massage earnings.