Skip to main content

Updated with additional information.

NEW YORK (

TheStreet

) -- The

Securities and Exchange Commission

is suing six former executives of

Fannie Mae

(FNMA.OB)

and

Freddie Mac

(FMCC.OB)

for allegedly misrepresenting their exposure to subprime loans to investors.

The executives include three former Freddie Mac executives- former CEO Richard Syron, former executive vice president and chief business officer Patricia Cook, and former executive vice president for Single Family Guarantee Business Donald Bisenius.

Former Fannie Mae executives charged include former CEO Daniel Mudd, who now is CEO of

Fortress Investment Group

undefined

Scroll to Continue

TheStreet Recommends

, former chief risk officer Enrico Dallacecchia and former executive vice president of Fannie Mae's Single Family Mortgage Business Thomas Lund.

The SEC alleged that Fannie Mae executives misled the public about its exposure to subprime mortgages and Alt-A loans between December 2006 and August 2008.

In its complaint against the Fannie Mae executives, the SEC alleged that when the agency began reporting its sub-prime exposure it broadly described the loans as those "made to borrowers with weaker credit histories" and then with the "knowledge, support and approval" of the executives, proceeded to report less than a tenth of its exposure that met that description.

The misleading claims were made as Fannie Mae executives sought to increase its market share through increased purchases of sub-prime and Alt-A loans.

Freddie Mac executives also allegedly misled public about its subprime loan exposure between March 2007 and August 2008. The SEC alleged that Freddie Mac's Syron and Cook publicly claimed that the Single Family Business had "basically no subprime exposure", but that as of Dec.31, 2006, the business was exposed to $141 billion of loans internally referred to as subprime or subprime like, which grew to $244 billion or 14% of the portfolio as on Jun 30,2008.

"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, Director of the SEC's Enforcement Division. "These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to subprime loans, and misled the market about the amount of risk on the company's books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors."

The SEC is seeking financial penalties, disgorgement for ill-gotten gains and officer and director bars against the former executives.

The SEC had sent Wells notices earlier this year to the executives informing them of their planned enforcement action, according to a

Wall Street Journal

report.

--Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here:

Shanthi Bharatwaj

.

>To follow the writer on Twitter, go to

http://twitter.com/shavenk

.

>To submit a news tip, send an email to:

tips@thestreet.com

.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.