Former Fannie Mae Chief Executive Officer Franklin Raines used the company’s charity to compromise the independence of six current directors at the largest U.S. mortgage finance company, according to a suit filed by shareholders in U.S. District Court in Washington, D.C., Bloomberg News reported.
Raines allegedly dispensed grants exceeding $12 million from the Fannie Mae Foundation to groups such as the Brookings Institution and the John F. Kennedy Center, discouraging directors tied to the organizations from challenging policies that led to $10.8 billion in accounting errors, according to the complaint, reports said.
Raines, who chaired the board and the foundation, “dominated his fellow board members,” said the suit filed Monday, according to reports. “In more than 78 board meetings, 48 audit committee meetings and 38 compensation committee meetings, defendants never raised any opposition to Raines, enabling and fostering the perpetuation of his schemes,” the suit alleged.
The plaintiffs in the case include the Wayne County Employees’ Retirement System and Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust, reports said. The filing was made in opposition to an appeal by Fannie Mae to have the litigation dismissed and was signed by Randall Baron at Lerach Coughlin Stoia Geller Rudman & Robbins LLP in San Diego, according to reports.
Fannie Mae spokesman Brian Faith and Raines’ attorney, Joseph Terry of Williams & Connolly SSP in Washington, declined to comment on the case, Bloomberg News reported.
The lawsuit alleges that, shielded by his influence over directors, former Seattleite Raines and former Chief Financial Officer Timothy Howard were able to “walk away with nearly $135 million” in unjustified severance after their ouster in December 2004, reports said.
Both Fannie Mae and its fellow government-sponsored enterprise, Freddie Mac, have been rocked by accounting scandals. In December 2004, Fannie Mae replaced Franklin Raines, its chairman and CEO, who announced he was taking early retirement, and Fannie Mae’s chief financial officer, Timothy Howard, resigned Dec. 21.
In early February of this year, the Bush administration said Congress should create a new regulator for Fannie Mae and Freddie Mac and direct it to cut the $1.4 trillion investment portfolios held by the government-sponsored enterprises.
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