University Trustee Richard Syron, BC ’66, recently received a Wells notice from the Securities and Exchange Commission (SEC) for his involvement in the Freddie Mac controversy, a possible indication that an enforcement action from the organization is forthcoming.
Syron, who is also a professor in the Carroll School of Management, served as CEO of Freddie Mac from 2003 until his termination in September of 2008.
Freddie Mac, more formally known as The Federal Home Loan Mortgage Corporation, is the nation’s second largest mortgage buyer. The company is a government-sponsored enterprise (GSE), which operates as a secondary market in home mortgages.
Recently, the U.S. government has begun investigating Freddie Mac and its sister company, Fannie Mae, for allegedly shady disclosure practices regarding the company’s investment in high-risk loans. Investigators allege that Freddie Mac failed to warn their investors about the serious risks associated with subprime loans, an issue which may have contributed to the recent economic downturn.
In 2003, Freddie Mac was accused of accounting irregularities, which raised suspicion from the Office of Federal Housing Enterprise Oversight. When Syron was installed as CEO later that year, he was given the duty of improving the company’s practices and cleaning up their accounting and disclosure records.
In 2008, both Fannie and Freddie collapsed, along with the financial market, and received more than $150 billion in government aid to stay afloat. That same year, Syron testified in front of the U.S. Senate Committee on Banking, Housing, and Urban Affairs regarding his company and financial market instability amid calls for increased government regulation. The testimony was dedicated to helping the committee find the proper balance between over and under regulation of the housing market.
“As to the question of whether Freddie Mac supports regulatory reform, the answer is, ‘Yes,'” Syron’s testimony reads. “We have long said that regulatory reform is needed to ensure continued public – and investor – confidence in the GSEs.”
However, Syron warned the committee that the company was “very concerned about the efficacy of legislation that imposes more and deeper-targeted housing goals on the GSEs, as well as additional duties and penalties.”
Seven months after Syron’s testimony, the Federal Housing Finance Agency announced that both Freddie Mac and Fannie Mae had been put under government conservatorship. One executive called the move “one of the most sweeping government interventions in private financial markets in decades.”
Although Syron himself has not commented on the investigations, his attorney told The Washington Post that Freddie Mac made accurate disclosures during his tenure as CEO. Attorneys for other executives declined to comment.
When contacted for an interview, Syron was unable to comment on the situation at Freddie Mac or his recent Wells notice.
Syron has not been accused of wrongdoing during his five-year tenure as CEO of Freddie Mac, nor is he the first executive to be marked for the investigation. According to The New York Times, Daniel H. Mudd, former CEO of Fannie Mae, also received a Wells notice, along with at least three other executives.
Since their collapse in 2008, Freddie Mac and Fannie Mae have both been on the brink of disaster. Their existence has been precariously saved by increasing government support. According to Times, Fannie recently requested $2.6 billion more from the Treasury Department. Freddie requested an additional $500 million.
Last month, Treasury Secretary Timothy F. Geithner said that both companies should be wound down and eliminated, a statement which points to an ominous future for the failing giants.