U.S. files civil charges in Fannie Mae fraud

WASHINGTON — The government on Monday filed civil charges against former Fannie Mae chief Franklin Raines and two other top executives, accusing them of misconduct costing shareholders billions of dollars.

The Office of Federal Housing Enterprise Oversight announced that it is seeking fines and the return of millions in bonus money. It filed 101 charges against Raines, former chief financial officer Timothy Howard and former controller Leanne Spencer.

Raines and Howard were swept out of office two years ago in the multibillion-dollar accounting debacle at the government-sponsored company, which finances one of every five home loans in the United States. Fannie Mae earlier this month announced a long-awaited restatement for 2001 through June 30, 2004, that erased $6.3 billion in profit.

OFHEO said it is seeking civil fines of $100 million or more against the three former executives and restitution totaling more than $115 million in bonus money tied to an improper accounting scheme.

Attorneys for Raines, Howard and Spencer disputed the regulators' charges and said they were politically motivated. The lawyer for Raines called OFHEO Director James B. Lockhart "a fatally biased regulator" and asked him in a letter to remove himself "immediately and completely from any further regulatory action affecting Mr. Raines."

Lockhart's true motivation in the charges is to get Congress to enact legislation tightening the government reins on Fannie Mae and Freddie Mac, its smaller sibling in the $8 trillion home-mortgage market, said Raines' attorney, Kevin Downey.

Raines, a prominent Washington figure who was White House budget director in the Clinton administration, led Fannie Mae — with its legendary political clout, generosity in campaign contributions and lobbying savvy — from 1999 until his ouster by the company board in December 2004.

Lockhart said the charges "reveal how the individuals improperly manipulated earnings to maximize their bonuses, while knowingly neglecting accounting systems and internal controls, misapplying over 20 accounting principles, and misleading the regulator and the public."

"The misconduct cost (Fannie Mae) and shareholders many billions of dollars and damaged the public trust," Lockhart said in a statement.