Internal Report: Freddie Managed Earnings

Freddie Mac's new chairman has admitted that the company's previous management engaged in a campaign to manage earnings by abusing accounting rules and that the mortgage giant's new chief executive Greg Parseghian was aware of some of the transactions in question, but ultimately was not responsible.Freddie chairman Shaun O'Malley went out of his way to show his support for Mr. Parseghian, saying he has been cooperating with an internal probe of the company "in good faith." On Wednesday morning Freddie's board released the results of an internal investigation into the restatement of its earnings, accusing past top management -- in particular former chief executive officer Leland Brendsel and president David Glenn -- of keeping the board in the dark about its accounting problems. Mr. O'Malley confirmed that "several" Freddie Mac employees have been fired as a result of the scandal, but would not give a precise number. (Former company employees are implicated in the report as well.) The report, led by outside counsel James Doty, says that senior management "also knew that corporate accounting lacked the necessary skill and resources to assure [that] the company's activities in this regard remained within the boundaries of GAAP." Messrs. Brendsel and Glenn could not be reached for comment. A spokeswoman for Freddie Mac said Mr. Parseghian would not comment "today" [Wednesday] and that "we are going to let the report speak for itself." (See the July 28 issue of National Mortgage News for full details.)