Former Freddie CEO ordered to testify

Former Freddie Mac CEO Leland Brendsel has been ordered to testify in a federal regulator’s investigation of the mortgage finance corporation’s accounting problems.

Judge Leonie Brinkema of the U.S. District Court for the Eastern District of Virginia in an order issued Monday upheld a subpoena by the Office of Federal Housing Enterprise Oversight that requires Brendsel to appear and testify in OFHEO’s examination of Freddie Mac. OFHEO issued the subpoena Oct. 10, 2003. The judge’s order directs Brendsel to comply within 14 days.

Brendsel was among the Freddie Mac executives who resigned in June after the company disclosed massive accounting errors that later resulted in an earnings restatement of $5 billion. OFHEO levied a $125 million fine against Freddie Mac, and ordered the corporation to increase its capital reserves until its produces current financial statements.

OFHEO Director Armando Falcon applauded the judge’s decision.

“I am pleased that the court has enforced our attempt to seek information from Mr. Brendsel. This is an important decision that upholds the authority of OFHEO to compel testimony as the agency continues to ensure the safety and soundness of the (Fannie Mae and Freddie Mac),” Falcon said in a statement.

The court ruled that OFHEO’s actions were appropriate and grounded in its statutory authority.

The regulator’s finding “that Freddie Mac is presently safe and sound does not deprive the OFHEO of its authority to continue its special examination to determine the future safety and soundness of Freddie Mac,” the court said.

The Department of Justice argued the case for OFHEO.

Brendsel’s exit package could enable him to cash out $21 million in grants of Freddie Mac stock and get $2.36 million in salary, plus an $860,000 bonus for his last six months of employment and life and health insurance for the next five years. But OFHEO has halted the payout of the package and has sought to impose a civil money penalty of $5.8 million on Brendsel.