Financial Fraud Fannie Mae
Review of Fraud Schemes within Fannie Mae 1998-2004
Scope
The agency found the fraud understatements of earnings and illegal gratuities that led to accounting violations and inability to meet Wall Street goals.
The investigation of Lee Frakas, executive of a major mortgage company which had dealings with Fannie Mae with hundreds of fake mortgages. The Securities Exchange Commission cited that Fannie Mae had to repay earnings and correct their books for the period 2001 through 2004. This major undertaking will cost the company over $11 billion by SEC estimates. In addition the Department of Justice has conducted a criminal investigation on the board members.
Summary
The top executive managing Fannie Mae were found guilty of illegally reporting accounting information that led to their receiving million dollar payments. Under Fraudulent Financial Statement Schemes this case is one of corruption and financial fraud. The specific areas include Illegal Gratuities, Asset/Revenue Overstatements and Understatements. Accounting records were falsified to satisfy investing partners according to the OFHEO (Oversight Office of Federal Housing Enterprise). The result was a substantial fine of several million dollars (Associated Press, 2006). The investigation by the Oversight Office took nearly three years and the entire overstatement of financial reports totaled a staggering $11 billion dollars (Associated Press, 2006). The Security Exchange Commission also penalized Fannie Mae levying over $400 million dollars in civil fees that are to be repaid to investors. These extensive violations of accounting and financial reporting caused major damage to investors that contributed to nearly crippling of the U.S. Housing market which still has yet to recover.
Many of Fannie Mae's executive board leaders were removed from office in 2004 due to the charges brought against the federal mortgage company (Associated Press, 2006). Earnings were misstated by failure to report accurate numbers by the competing Freddie Mac for over $4 billion dollars...
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