Freddie Mac Ex-President Recently Saw Stock Vest

Looks like David Glenn, the former president at Freddie Mac ( FRE), got fired at the right time.

Just days before Glenn was ousted from the nation's second-largest mortgage buyer amid allegations of misconduct and a widening accounting inquiry, his rights to 13,130 shares of restricted company stock had vested.

Glenn was fired Monday as part of a top-level management shake-up, which included the resignations of two other Freddie executives.

But in Glenn's case, the vesting period for the restricted shares occurred on June 5, one day after Freddie officials discovered that he allegedly altered some pages and notations in several personal diaries he kept about the company's affairs -- the event that led to his firing.

Efforts to reach Glenn were unsuccessful.

Washington Diarist

Freddie's audit committee had asked Glenn to turn over the diaries as part of an inquiry into the reasons behind the company's decision to restate earnings for the past three years.

The upheaval at Freddie is sending shock waves through the financial markets because Freddie and its close cousin, Fannie Mae ( FNM), are critical players in the mortgage market. The government-sponsored companies buy up mortgages issued by banks, package them and sell bonds backed by the mortgages to investors.

Meanwhile, regulators at the Office of Federal Housing Enterprise Oversight, which oversees Freddie and Fannie Mae, and reportedly regulators from the Securities and Exchange Commission, are launching their own inquiries into Freddie's accounting procedures.

A Freddie official said Glenn got the 13,130 shares as part of a routine stock-vesting program for top corporate executives. Of the 13,130 shares that vested, 4,228 were sold back to the company by Glenn to pay the taxes associated with the vesting process. That left him with a net total of 8,802 shares.

In all, Glenn potentially walks away from Freddie with 259,599 shares of the company's stock, some of which includes a mixture of both restricted and nonrestricted shares.

Takeaway

Freddie disclosed Glenn's nonmarket sale of the 4,228 shares on its corporate Web site some after it announced his firing on Monday.

A Freddie official said Glenn sold the shares back to the company's treasury department, as part of a routine procedure that other company officials follow to pay the taxes associated with registering restricted stock. The official noted that at least six other Freddie officials had similar tax-related sales on June 5, when their restricted shares vested.

However, if Glenn had been fired on June 4 -- when the diary alterations were first discovered -- he probably wouldn't have been entitled to any of the vested shares.

It's not clear whether Glenn will now forfeit his rights to some of the 259,599 shares he's listed as owning.

Over the years, Freddie has routinely given its top executives both stock options and grants of restricted stock as part of their compensation. Glenn had been with the company for 11 years.

The events leading up to Glenn's firing date back to early this year when the company announced that it would have to restate earnings for the past three years on the recommendation of its auditor.

PricewaterhouseCoopers had recommended the restatement after suggesting that Freddie change its accounting treatment for derivatives -- specialized financial contracts that are used to hedge some of its exposure to interest rate fluctuations. PwC had recommended that some financial instruments, which had risen in value, be treated as assets rather than derivative contracts.

Copybook Truths

The heat got turned up on Glenn last week after Freddie executives discovered that he may have altered some of his personal diaries. Sources say Glenn routinely took notes about the company's affairs and recorded them in black-and-white composition notebooks.

The altered notebooks are now of interest to regulators who are trying to determine whether Freddie was engaging in earnings management and trying to bank some of its income in a special reserve account for use in a bad quarter.

A person familiar with stock sales by corporate insiders said it is not uncommon for executives to sell stock back to a company to cover the tax burden associated with either registering stock, or exercising an option to buy stock.

But the timing of the stock sale could create a problem for Freddie officials because it came a day after the company determined that Glenn was not fully cooperating with its internal investigation.

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