FBI Probes Losses at Freddie Mac: Report

The FBI is raising questions about whether Freddie Mac improperly delayed the recognition of billions of dollars of losses, a report says.

Author:: Joseph Woelfel
Publish date:: Apr 30, 2009 5:21 AM EDT

Federal investigators looking into possible accounting violations at

Freddie Mac

(FRE)

are raising questions about whether the company improperly delayed the recognition of billions of dollars of losses, the

Wall Street Journal

reports, citing people familiar with the matter.

The

Journal

says a confidential report in February 2008 by investigative firm Kroll concluded that "inappropriate application" of accounting rules "enabled Freddie to defer billions of dollars of losses incurred from 2001 through 2004" on derivative contracts whose value depends on fluctuations in interest rates. The losses, currently about $3.7 billion, are due to be gradually recognized in quarterly earnings statements over the next several years, the

Journal

notes.

Investigators from the FBI obtained a copy of that report, which was never publicly released, and recently sought more information on the issue, the

Journal

reports.

The accounting practices at Freddie Mac, the government-backed mortgage company, and its rival

Fannie Mae

(FNM)

have been the focus of investigations by the Justice Department and the

Securities and Exchange Commission

for at least six months. The firms have disclosed the investigations but haven't provided details on the questions being raised.

A spokeswoman for Freddie told the