Academic Raps Freddie's 'Doty Report'

Meanwhile, a leading academic has told Congress that Freddie Mac's "Doty Report," an internal investigation into the company's earnings restatement scandal, is "too forgiving" in parts.Testifying before the House Energy and Commerce subcommittee on commerce, trade and consumer protection Thursday morning, Professor Baruch Lev of the Stern School of Business at New York University said, "You read parts of the report and get the impression that no harm was done." Although he called the Doty Report "outstanding" in general, he then proceeded to criticize parts of it. The report's author, attorney James Doty of Baker Botts, also testified before the subcommittee, repeating some of the report's key findings, and blaming the scandal partly on Freddie Mac's over-reliance on outside auditors. Released early this summer, the report concludes that the company's previous management engaged in a campaign to manage earnings by abusing accounting rules. In one instance, Freddie Mac executives took actions to hide a $1.5 billion gain in its derivatives portfolio. In another instance, executives shifted $30 billion in securities (in which the company had an unrealized loss) to a third party over several hours in order to recognize a one-time loss and offset real gains elsewhere. (See the Sept. 29 issue of National Mortgage News for full details.)