Judge In SEC Probe: Ex-Executives Knew Fannie Mae's Disclosures On Subprime Mortgages Were 'Misleading'

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Judge In SEC Probe: Ex-Executives Knew Fannie Mae’s Disclosures On Subprime Mortgages Were ‘Misleading’

Judge In SEC Probe: Ex-Executives Knew Fannie Mae’s Disclosures On Subprime Mortgages Were ‘Misleading’

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* Ex-CEO Mudd accused of misleading mortgage disclosures

* Judge says SEC plausibly alleged intent to mislead

* Lawyers for defendants not immediately available

Three former senior Fannie Mae executives lost their bid to dismiss a U.S. Securities and Exchange Commission civil fraud lawsuit accusing them of misleading investors about the company’s exposure to risky mortgages.

The executives, including one-time Chief Executive Daniel Mudd, contended that Fannie Mae had explicitly and accurately disclosed its exposure to subprime and low-documentation “Alt-A” home loans before the government seized the mortgage-finance enterprise in September 2008.

But U.S. District Judge Paul Crotty in Manhattan said the SEC plausibly alleged that Mudd, former Chief Risk Officer Enrico Dallavecchia and former Executive Vice President Thomas Lund materially misled investors by not disclosing exposures to risky mortgages that totaled more than $440 billion.

“They must have known that Fannie Mae’s disclosed subprime and Alt-A exposure calculations were materially misleading,” Crotty wrote on Friday. “Defendants’ conduct in making, or aiding others that made, these misstatements constitutes and extreme departure from the standard of ordinary care.”

[HUFFINGTON POST]

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