NEW YORK (Reuters) - The U.S. Securities and Exchange Commission has reached a settlement with two former Fannie Mae FNMA.OB executives in one of its biggest lawsuits tied to the financial crisis, and the two men agreed as part of the deal to cooperate with the SEC in its case against former Chief Executive Daniel Mudd.
Fannie Mae’s former chief risk officer Enrico Dallavecchia and former executive vice president Thomas Lund will pay $25,000 and $10,000, respectively, to settle charges that they helped conceal the company’s exposure to more than $100 billion of subprime and $341 billion of low-documentation “Alt-A” home loans.
Both denied wrongdoing. Their agreement to cooperate with the SEC in its case against Mudd could increase pressure on him to settle. The SEC said that case could last another year.
The settlement was approved on Monday by U.S. District Judge Paul Crotty in Manhattan.
Mudd, in a statement, called the SEC charges “false” and “politically motivated” and said Fannie Mae’s disclosures had been accurate. “I have never contemplated accepting the SEC’s retrospective revision of the facts, and I have declined to engage in any settlement discussions,” he said.
SEC spokesman John Nester declined to comment.
Monday’s settlement means the SEC has been unable to extract major penalties against five of the six former top executives it sued at Fannie Mae and Freddie Mac FMCC.OB.
The government seized both mortgage finance companies on Sept. 7, 2008, and put them into a conservatorship under the Federal Housing Finance Agency, where they remain.
In April, former Freddie Mac Chief Executive Richard Syron, its former chief business officer, Patricia Cook, and former vice president of credit policy, Donald Bisenius, agreed to pay a combined $310,000 to resolve the SEC case against them.
Michael Levy, a Paul Hastings partner representing Lund, said his client did nothing wrong.
“Tom Lund has been vindicated,” he said. “After investigating for three years, litigating for another three years, deposing 50 witnesses and hiring four experts, the SEC concedes that it has not prevailed.”
Andrew Levander, a partner at the Dechert firm representing Dallavecchia, said he was pleased to reach a settlement that leaves the SEC’s “baseless charges” behind. “Mr. Dallavecchia’s conduct was entirely proper,” he said.
The $35,000 of payments will go to the U.S. Treasury, not the SEC, and may be made by Fannie Mae on the defendants’ behalf, settlement papers show. Levy said Lund “will not contribute a dime from his own pocket.”
In March, Crotty approved Fannie Mae’s separate $170 million settlement of a lawsuit accusing it of misleading shareholders about its finances before the financial crisis.
The case is SEC v. Mudd et al, U.S. District Court, Southern District of New York, No. 11-09202.
Reporting by Jonathan Stempel in New York; Editing by Alan Crosby and Leslie Adler