Knives out at Freddie Mac in row over financial reporting
Tuesday 10 June 2003
Freddie Mac, the second largest mortgage finance company in the United States, announced a major shake-up in senior management yesterday amid questions about its co-operation with an investigation into its financial reporting.
The drama at the company, which is widely traded in spite of its quasi-governmental status, rekindled worries about the quality of governance among American companies and helped trigger a decline in stocks on Wall Street after a weeks-long rally. A profit warning from Motorola also sent shares sliding.
Freddie Mac said it had dismissed David Glenn, its president and chief operating officer, "because of serious questions as to the timeliness and completeness of his co-operation and candour" with lawyers hired in January by the board of directors' audit committee to review the accounting problems.
Adding to the turmoil, the company announced the resignation of its chairman and chief executive officer, Leland Brendsel. The chief financial officer, Vaughn Clarke, was also said to be departing the mortgage giant.
Created by a charter of the US Congress in 1970 to ensure a flow of funds to mortgage lenders, Freddie Mac was originally called the Federal Home Loan Corporation. However, it was quickly given its more folksy nickname, which it formally adopted in 1997.
At the weekend, Armando Falcon, director of the Office of Federal Housing Enterprise Oversight, the federal agency that monitors Freddie Mac, wrote in a letter to the company that he had "become increasingly concerned about evidence that has come to light of weakness in controls and personnel expertise in accounting areas and the disclosure of misconduct on the part of Freddie Mac employees".
In a conference call yesterday, Freddie Mac's new chief executive officer, Gregory Parseghian, told shareholders that he saw no evidence of any criminal wrongdoing.
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