Guess who’s paying legal fees of Fannie, Freddie execs accused of securities fraud

posted at 10:54 am on February 23, 2012 by Howard Portnoy

It happens all the time, albeit on a much smaller scale: A thief is caught stealing from a shopkeeper who then is required to pitch in for the crook’s legal aid defense via his tax dollars.

Only in this case, the cost of the alleged crime is measurable in billions of dollars and the legal fees of the defendants are in the millions. The six defendants, moreover, aren’t any penny-ante thieves, at least not in the scope of their offenses. They are top executives of the government-sponsored enterprises Fannie Mae and Freddie Mac, and they were charged in December by the Securities and Exchange Commission with making fraudulent statements about the extent of high-risk loans they had approved. The cost of those unrecoverable loans, made using U.S. taxpayer funds, is reported to be $183 billion.

But taxpayers are also on the hook for the legal fees of former Fannie Mae CEO Daniel Mudd and pals. Peter Henning, a law professor at Wayne State University, explains:

Although they were government-sponsored enterprises, Fannie and Freddie operated much like any other large corporation, which included giving their executives broad indemnification rights that requires the companies to pay their legal fees….

The Subcommittee on Oversight and Investigations of the House Financial Services Committee held a hearing in February that considered the right to indemnification of former Fannie Mae executives involved in the accounting case settled in 2007. The written testimony of the acting director of the Federal Housing Finance Agency, which oversees the two companies, stated that it was committed to following the indemnification provisions provided to its executives by paying reasonable lawyer’s fees.

But FOX News Channel host Greta Van Susteren, herself an attorney, commented on Wednesday’s On the Record, that the $37 million in legal fees paid out so far according to the inspector general of the Federal Housing Finance Agency is anything but reasonable.

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