Freddie Settles SEC Case

Freddie Mac(FRE Quote) will pay $50 million to settle charges that it misled investors by smoothing earnings growth.

The settlement closes out the last probe tied to the accounting chicanery that saddled the mortgage firm with billions of dollars in restatements and led to the ouster of previous management.

In its complaint, the Securities and Exchange Commission alleged that Freddie manipulated its earnings beginning as early as 1998 and lasting through 2002. According to the complaint, Freddie Mac misreported its net income in 2000, 2001 and 2002 by 30%, 24% and 43%, respectively, the SEC said.

The mortgage finance firm "engaged in a fraudulent scheme that deceived investors about its true performance, profitability, and growth trends," the SEC said. Senior management "exerted consistent pressure to have the company report smooth and dependable earnings growth in order to present investors with the image of a company that would continue to generate predictable and growing earnings."

As a result of accounting errors and irregularities related to the mortgage finance firm's massive derivatives portfolio -- which it uses to hedge against interest rate fluctuations -- Freddie Mac was ensnared in an accounting scandal that began in 2003. While the McLean, Va.-based firm had restated earnings for the three years and replaced its senior management team, federal regulators began probing Freddie Mac and ultimately forced it to pay millions in fines.