The Five Dumbest Things on Wall Street This Week
1. Freddie's Foibles
Freddie Mac (FRE) is still trying to turn the corner.
The McLean, Va., government-sponsored mortgage investor agreed Thursday to pay $50 million to settle charges that it fraudulently misstated three years' worth of earnings. The Securities and Exchange Commission said the company misled investors between 2000 and 2002 by reporting smoother profit growth than it was actually producing.
"As has been seen in so many cases, Freddie Mac's departure from proper accounting practices was the result of a corporate culture that sought stable earnings growth at any cost," SEC enforcement director Linda Thomsen said. "Investors do not benefit when good corporate governance takes a back seat to a single-minded drive to achieve earnings targets."Since its accounting games came to light back in 2003, Freddie has had little success in achieving targets of any sort. The company has been working to fix its internal procedures, but a report issued by Freddie's regulator this past spring said that the efforts "suffered during 2006 from ineffective planning and inconsistent execution." Still, CEO Richard Syron claims the company has learned its lesson. He notes that Thursday's settlement "would resolve the last investigation related to the company's legacy restatement issues," as he quaintly puts it. "We take these charges seriously," Syron added Thursday, "and that's why the Freddie Mac of today is a very different company than the Freddie Mac of the past." Unfortunately, that's not saying much. Dumb-o-Meter score: 91. Four former Freddie execs also settled without admitting or denying the charges.
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