Fannie Mae Board Reverses Stance - CEO Won't Head Probe

May 26, 2006

Reversing course Thursday, Fannie Mae's chairman said CEO Daniel H. Mudd won't lead the company's investigation into who should be fired or punished because of the housing giant's $10.6 billion accounting scandal.

Instead, Stephen B. Ashley said that four independent board members who have joined Fannie Mae in the last 18 months would spearhead the probe.

Ashley said the board decided to change its plans on Wednesday, one day after he said on an analyst call that Mudd would lead the review. He said the decision was "internal" and didn't come from pressure by regulators or lawmakers.

On Tuesday, the Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission fined Fannie Mae $400 million for "deliberately and systematically" creating earnings "illusions" to hit targets from 1998 through 2004.

Reaching these targets triggered millions of dollars in bonuses for senior Fannie Mae executives.

Mudd, who was chief operating officer at the time, received $14.5 million in bonuses and rewards tied to Fannie Mae's ability to hit the earnings targets.

Ashley said the board's decision to retain Mudd does not exempt him from a review of the bonuses he earned and possible disgorgement.

"Yes, he'll be treated like everyone else," Ashley said.

Coinciding with the fine, the mortgage giant's board vowed to review all the current employees and directors mentioned in a 340-page report issued by OFHEO.

The board's probe will now be led by directors Dennis Beresford, former head of the Financial Accounting Standards Board; Greg C. Smith, vice chairman of Ford Motor Co.; Bridget A. Macaskill, principal of BAM Consulting LLC; and John K. Wulff, chairman of Hercules Inc.

All have joined Fannie Mae since December 2004.

Copyright 2006 Associated Press.