During the campaign, Barack Obama had to fight off assertions that Freddie Mac and Fannie Mae had him in their pocket while the two GSEs committed fraud and declined to their collapse. Obama didn’t help that perception when he chose Jim Johnson, Fannie Mae’s former CEO and chair, as the leader of his VP search committee, a position Johnson resigned shortly afterwards. Now ABC reports that Obama’s new chief of staff, Rahm Emanuel, sat on the board of Freddie Mac during the critical period:
President-elect Barack Obama’s newly appointed chief of staff, Rahm Emanuel, served on the board of directors of the federal mortgage firm Freddie Mac at a time when scandal was brewing at the troubled agency and the board failed to spot “red flags,” according to government reports reviewed by ABCNews.com.
According to a complaint later filed by the Securities and Exchange Commission, Freddie Mac, known formally as the Federal Home Loan Mortgage Corporation, misreported profits by billions of dollars in order to deceive investors between the years 2000 and 2002.
Emanuel was not named in the SEC complaint (click here to read) but the entire board was later accused by the Office of Federal Housing Enterprise Oversight (OFHEO) (click here to read) of having “failed in its duty to follow up on matters brought to its attention.”
Emanuel’s action, or lack of it, came during a time when the SEC says Freddie Mac misrepresented its income to investors in order to maintain its price. In other words, they committed fraud. The SEC specifically notes that Freddie did this in 2000, 2001, and 2002, and Emanuel sat on the board in 2000-2001.
This is no small matter. Had this happened when Sarbanes-Oxley was in effect, Emanuel would have had to sign off on those numbers under penalty of perjury. He could be liable for criminal prosecution. As it is, his actions and omissions as a board member may still result in civil and criminal liability, if the SEC discovers that he had a hand in the fraud committed at Freddie Mac, or if Emanuel knew about it and failed to act to stop it.
For an incoming administration that ran on cleaning up the greed on Wall Street, the selection of Emanuel speaks a lot louder than any campaign promises. One might think that anyone who sat on the boards of Fannie Mae and Freddie Mac while the two GSEs cooked the books and set the stage for global financial collapse should at least be considered political poison for any appointment, let alone one as significant as White House Chief of Staff — if nothing else, then at least on the basis of competence. Instead, it looks like Obama is bringing the Chicago Way to Pennsylvania Avenue.
Hope and change, indeed.
Update: Business & Media Institute notes the numbers on Emanuel and Freddie Mac:
“Clinton’s going-away gift to Emanuel was a seat on the quasi-governmental Freddie Mac board, which paid him $231,655 in director’s fees in 2001 and $31,060 in 2000,” Lynn Sweet wrote for the Chicago Sun-Times on Jan. 3, 2002.
During the time Emanuel spent on the board, Freddie Mac was plagued with scandal involving campaign contributions and accounting irregularities. Freddie Mac and its sister organization Fannie Mae were taken over by the federal government in September 2008 after years of mismanagement and scandal. Treasury Secretary Henry Paulson put the two beleaguered GSEs into a conservatorship, stripping common stock shareholders of their rights to govern the companies. …
“Freddie Mac was accused of illegally using corporate resources between 2000 and 2003 for 85 fundraisers that collected about $1.7 million for federal candidates,” an Associated Press story from April 18, 2006 said. “Much of the fundraising benefited members of the House Financial Services Committee, a panel whose decisions can affect Freddie Mac.”
And, since his successful run for the House of Representatives in 2002, Emanuel has been the beneficiary of campaign cash from Freddie Mac and its sister organization Fannie Mae – $51,750 according to the Center for Responsive Politics Web site OpenSecrets.org.
That’s certainly something to keep in mind while recalling the promises by Barack Obama to change the way business gets conducted in Washington.