Excuse the lengthy excerpt, but this needs to be read:
Adding to their woes, mortgage finance giants Fannie Mae and Freddie Mac are facing a federal grand jury investigation into their accounting practices.
The mortgage finance companies said Monday that a federal grand jury in New York is investigating accounting, disclosure and corporate governance issues at Washington-based Fannie and McLean, Va.-based Freddie.
Fannie and Freddie said they received subpoenas Friday from the U.S. Attorney’s office in Manhattan as well as requests from the Securities and Exchange Commission that they preserve documents. Fannie Mae and Freddie Mac were taken over by the government earlier this month as their mounting defaults and foreclosures threatened the entire mortgage market.
The government investigation focuses on activities starting in 2007, Freddie Mac said in a statement.
Critics have long questioned the companies’ bookkeeping. Last November, for example, a Fortune magazine story said new accounting procedures at Fannie Mae masked potential losses on bad loans.
And several years ago, both Fannie and Freddie were forced to restate billions in earnings after federal regulators discovered accounting irregularities at both companies.
The scandals led to the replacement of the companies’ top executives. Freddie Mac’s former CEO, Gregory Parseghian was ousted in December 2003. Fannie CEO Franklin Raines and chief financial officer Timothy Howard were swept out of office a year later.
Wouldn’t 2004 have been a good time to issue subpoenas, instead of a few useless weeks before the 2008 election?
While thinking about that, watch this: