The Securities and Exchange Commission on Friday sued Richard Syron, the former chief executive officer of Freddie Mac, and Daniel Mudd, ex-CEO of Fannie Mae, over disclosures they made about subprime assets the GSEs invested in.

Complaints were filed against the two men in U.S. District Court in Manhattan.

The agency also sued Enrico Dallavecchia, a former chief risk officer for Fannie Mae; Thomas Lund, Fannie's Mae's former executive vice president; Patricia Cook, Freddie Mac's former executive vice president; and Donald Bisenius, who was a senior vice president at Freddie.

The GSEs did not purchase subprime loans in the secondary market per se, but invested in the 'AAA' pieces of nonprime MBS deals sold to them by various Wall Street firms. They also bought Alt-A loans.

The investments later turned sour resulting in billions of dollars in losses, which contributed to the federal takeover of the two.

"This action arises out of series of materially false and misleading public disclosures," the SEC said in the complaint filed against Syron.

The government is seeking unspecified damages against the defendants. Fannie and Freddie, which have been wards of the government since Sept. 2008, were not named as defendants in the case. The U.S. Treasury Department controls the preferred stock of the two.

Mudd was fired as CEO of Fannie in the fall of 2008 and now serves as CEO of Fortress Investment Group. FIG controls Nationstar Mortgage, a subservicing vendor to Fannie.
During Mudd's tenure as CEO of Fannie Mae, from 2004 to 2008, the GSE increased its investments in nonprime mortgages as the market shifted in that direction.

According to one report, Mudd said in a 2006 interview that he planned to expand Fannie's holdings to include more higher-risk loans. Anything else would be "counterproductive," he told investors in March of that year.

In April 2007, Mudd said in testimony before lawmakers that the firm's exposure to subprime loans "remains minimal, less than 2.5% of our book."

At the same hearing, Syron said his firm hadn't "been heavily involved in subprime all along."
At press time, the defendants in the case had not yet issued any comment on the new filing.

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