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SEC Considers Case vs. Freddie Mac

The company's earnings management fiasco leads to a Wells Notice.

Regulators told

Freddie Mac


they may pursue a civil case on the big mortgage company's bookkeeping missteps.

The McLean, Va., company said early Thursday it had received a so-called Wells Notice, in which the staff of the

Securities and Exchange Commission

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told Freddie that it would recommend a civil suit for breaches of federal securities laws. The Wells Notice indicates the SEC staff may seek a permanent injunction and a civil money penalty.

"As previously disclosed, Freddie Mac has been cooperating with the SEC's investigation and will continue to do so as we evaluate the manner in which we will respond to the receipt of the Wells Notice," the company said.

Freddie got into trouble with regulators last year because of a series of accounting gimmicks it used to smooth out the volatility in its earnings.

Last November a restatement of the mortgage company's financial statements for the past three years revealed that total earnings at Freddie were understated by a total of $5 billion, as the company tried to push out earnings to future quarters in order to ease the volatility.

The accounting scandal at Freddie, the nation's second-biggest buyer of mortgages, led to a number of top management firings, resignations, an overhaul of the firm's accounting practices and a $125 million fine.

Early Thursday, Freddie was flat at $67.55.