In a very significant case, the SEC has singled out and sued 6 former top executives with Fannie Mae and Freddie Mac with securities fraud, alleging they knew or approved of misleading statements about their respective company's subprime mortgage holdings. In related agreements, Fannie and Freddie each entered into a Non-Prosecution Agreement with the SEC in which each company agreed to accept responsibility for its conduct and not dispute, contest, or contradict the contents of an agreed-upon Statement of Facts without admitting nor denying liability.  Each company also agreed to cooperate with the Commission's litigation against the former executives.  In entering into these Agreements, the SEC considered the unique circumstances presented by the companies' current status, including the financial support provided to the companies by the U.S. Treasury, the role of the Federal Housing Finance Agency as conservator of each company, and the costs that may be imposed on U.S. taxpayers - meaning no financial penalties were levied. The Justice Department also investigated the mortgage giants - but no charges have been brought. Who Was Charged. Following its 3-year investigation, the SEC charged these former Fannie Mae executives: CEO Daniel Mudd ...  Chief Risk Officer Enrico Dallavecchia ...  EVP Thomas Lund.  And these former Freddie Mac executives:  CEO Richard Syron ...  Chief Business Officer Patricia Cook ...  EVP Donald Bisenius.

"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was.  These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to subprime loans, and misled the market about the amount of risk on the company's books.  All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors."   -- Robert Khuzami, SEC Enforcement Director.

SEC Findings and Allegations. While the former Fannie and Freddie officials agreed to settle, specific monetary sanctions have not been determined - at least they were not disclosed.  The SEC seeks financial penalties, disgorgement of ill-gotten gains with interest, permanent injunctive relief and officer and director bars against all six. In both lawsuits, SEC alleges that the former executives caused the federal mortgage firms to materially misstate their holdings of subprime mortgage loans in periodic and other filings with the Commission, public statements, investor calls, and media interviews. The SEC further alleges that:

• Fannie executives made misleading statements - or aided and abetted others - between December 2006 and August 2008, pertaining to Alt-A mortgage loans.
• Fannie executives made misleading statements - or aided and abetted others - between March 2007 and August 2008.
• When Fannie Mae began reporting its exposure to subprime loans in 2007, it broadly described the loans as those "made to borrowers with weaker credit histories," and then reported -  - less than 1/10th of its loans met that description.
• When Fannie reported that its 2006 year-end Single Family exposure to subprime loans was just 0.2%, or about $4.8 billion, of its Single Family loan portfolio, investors were not told that, in calculating the Company's reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by Fannie Mae towards borrowers with weaker credit histories, including more than $43 billion of Expanded Approval, or "EA" loans.

What will count. Currently, the SEC is looking into whether the two mortgage companies underreported or misled investors about their ownership of subprime loans and mortgages, which required few documents from borrowers in years leading up to and including the housing bust. What will happen. Going forward, the Fannie Mae and Freddie Mac 6 agreed to settle with regulators and cooperate with its investigation of former executives. The Justice Department has its own investigation going, but no charges have been brought.