OFHEO: Freddie Execs Fostered EPS Manipulation

Freddie Mac's top executives rewarded employees for manipulating earnings and fostered a culture that compromised the company's internal controls and circumvented public disclosure standards, according to a long-awaited report by the Office of Federal Housing Enterprise Oversight.OFHEO's investigation into Freddie Mac's accounting scandal points to a bonus scorecard devised by former chairman and chief executive Leland Brendsel and former president and chief operating officer David Glenn that encouraged senior managers to engage in inappropriate actions to hit the company's earning targets. "The informal process by which Mr. Brendsel and Mr. Glenn revised the scorecard results, and therefore the amount of funds available for individual bonuses, reinforced in the minds of managers and other employees the importance of achieving earnings per share targets," the OFHEO report says. Mr. Brendsel's attorney declined to comment. Mr. Glenn's attorney, Thomas Vartanian, said, "Mr. Glenn's earlier settlement with OFHEO resolved all issues. And we believe the terms speak for themselves." Mr. Glenn agreed to pay a $125,000 fine and cooperate with OFHEO's investigation. OFHEO also reported that the board of directors "failed" to live up to their responsibilities. As a result of Freddie Mac's emphasis on smoothing out its earnings to please Wall Street, the company "cast aside accounting rules, internal controls, disclosure standards and the public trust," OFHEO's 185-page report says. Freddie Mac needs to "develop a corporate culture that rewards integrity and the acceptance of responsibility and individual accountability," OFHEO said.