Letter to The Honorable Michael B. Mukasey, Attorney General

Letter

Letter to The Honorable Michael B. Mukasey, Attorney General

Sen. Cornyn Seeks Criminal Investigation of Corporate Officers at Fannie Mae & Freddie Mac

Says in Wake of Record Corporate Bailout, Any Who Violated Criminal Laws Must Be Held Accountable

Citing past examples of corporate malfeasance by Fannie Mae, U.S. Sen. John Cornyn, Vice-Chair of the Senate Republican Conference, announced on the Senate floor this morning that he has sent a letter to U.S. Attorney General Michael Mukasey requesting the Department of Justice begin a full-scale criminal investigation into the corporate activities of Fannie Mae and Freddie Mac.

In 2006, a report showed that Fannie Mae intentionally overstated its earnings by $10.6 billion to hit projected targets. Yet, while top executives received civil fines, no criminal charges were ever pursued.

"No one actually knows how much this bailout is going to cost the American taxpayer…. Yet, certainly the taxpayers were not there to share in the profits during the heyday of these government-sponsored enterprises," Sen. Cornyn said on the floor this morning. "I have written a letter to the Attorney General of the United States asking him to conduct a criminal investigation into the activities of corporate officers and anyone else who may have contributed to the overstatement of assets on the books of Fannie Mae and Freddie Mac. I want to make sure that a thorough criminal investigation is undertaken and that those responsible for violating any criminal laws of the United States be held accountable."

The full text of Senator Cornyn's letter to the Attorney General is as follows:

The Honorable Michael B. Mukasey
Attorney General
U.S. Department of Justice
950 Pennsylvania Avenue, NW
Washington, DC 20530-0001

Dear General Mukasey:

The recent government takeover of the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") raises serious concerns whether a well-documented culture of corporate executive corruption at these organizations contributed to the mortgage giants' collapse. I request that the Department of Justice begin a new, full-scale investigation into accounting fraud and other corrupt practices perpetuated by top executives—and coordinate efforts with the Department of Treasury and other regulatory entities to determine to what extent any illegal activities led to the institutions' failure. The public deserves a full understanding of the events surrounding the failure of Fannie Mae and Freddie Mac and, furthermore, corporate executives must be held accountable to the American people.

In May 2006, a report by Fannie Mae's oversight authority, the Office of Federal Housing Enterprise Oversight (OFHEO), noted that "[b]y deliberately and intentionally manipulating accounting to hit earnings targets, senior management maximized the bonuses and other executive compensation they received, at the expense of shareholders." The investigation into illegal accounting practices resulted in fines levied on Fannie Mae and three of its top corporate officers—but no criminal charges. While the three corporate officers who overstated Fannie Mae's earnings by approximately $10.6 billion may possess some form of prosecutorial immunity, it is imperative that there is accountability for each and every fraud perpetrated upon shareholders and the public. Moreover, the efficacy of prior investigations by OFHEO and Justice are further called into question in light of evidence of disturbing allegations of active interference on the part of Fannie Mae lobbyists. According to the OFHEO report, Fannie Mae "sought to interfere" with the OFHEO investigation by petitioning Congress to conduct a separate investigation of OFHEO. Furthermore, they allegedly lobbied Congress to cut OFHEO's funds for failure to fire the top official responsible for investigating Fannie Mae.

As the future of Fannie Mae and Freddie Mac is debated, it is essential for Congress to shine more light on the culture of corruption that plagued these institutions. But federal prosecutors and regulators also must vigorously investigate these institutions with the utmost urgency. Shareholders—indeed, all taxpayers—are entitled to a critical examination of Fannie Mae and Freddie Mac in light of the huge costs they are forced to bear as a result of the mortgage companies' demise.

Thank you for your prompt attention to this matter.

Sincerely,

JOHN CORNYN
United States Senator

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