A top-tier shakeup at Freddie Mac ( FRE) rattled financial markets Monday as government regulators signaled that they are stepping up an inquiry into the company's accounting. Some observers argued the changes are long overdue, however, and said that ultimately they will help the company. Out at Freddie Mac are David Glenn, the company's president and chief operating officer; Leland Brendsel, Freddie's chairman and chief executive; and Chief Financial Officer Vaughn Clarke. Glenn was fired, and Brendsel and Clarke resigned. The nation's second-largest buyer of home mortgages said Glenn's firing was prompted by "serious questions" about his cooperation with the company's internal audit review of past earnings, which has been going on since the beginning of the year. The company said Glenn maintained his own personal diary of events at Freddie and may have altered some of those entries. The alleged misconduct was first discovered by Freddie Mac on June 4, sources say. The internal investigation was being led by Freddie's audit committee, headed by Tom Jones, a top Citigroup executive.
The turmoil at Freddie will likely provide ammunition to congressional critics who have been calling for greater regulatory oversight of the two giant mortgage finance firms. By late afternoon, calls on Capitol Hill for a hearing into the Freddie mess began to mount, with Rep. Rep. Ed Markey (D., Mass.) being one of the first to call for hearing.
When Freddie announced the earnings review in January, it said the restatement would likely result in its prior earnings being "materially" higher. PWC had recommended that some financial instruments, which had risen in value, be treated as assets rather than derivative contracts.