Remember when Fannie Mae and Freddie Mac were taken over in September, 2008? Bet you didn’t think taxpayers would be stuck paying $50 million to defend three executives accused of fraud, did you?
Yep, you read that right.
Franklin Raines, J. Timothy Howard, and Leanne Spencer, are accused of accounting fraud designed to maximize their own bonuses and taxpayers have been paying for their legal defense, according to Kevin Spak of Newser.
But how did taxpayers get stuck with the bill?
“The legal costs are the responsibility of taxpayers because of contracts struck by the companies before they collapsed,” writes the New York Times’ Gretchen Moregenson.
What’s worse is the fact that all this could have been avoided had the Federal Housing Finance Agency chosen to repudiate the contracts when it “rescued” the companies. But for reasons unknown, it didn’t and taxpayers have been bearing the cost ever since.
“Those agreements, which are typical in corporate America, state that legal fees incurred by executives defending against lawsuits will be advanced by the companies,” Moregenson writes. “If a court or jury rules that officials breached their duties or acted in bad faith, the officials will have to repay the advances.”
So at least taxpayers might get paid back. How much was advanced since the companies were “rescued?” $50 million?
“But with legal outlays since 2004 reaching $99.4 million [for the three executives]…it seems unlikely that the taxpayers will ever recover the money even if some or all of them are found liable,” the Times reports. Simply put, even if the jury finds some or all of them liable, it’s going to be interesting to
Well, if it’s any consolation, at least a couple of people in Washington, D.C., think this is unacceptable.
“The inspector general’s report on legal fees clearly demonstrates the need for continued Congressional oversight over these entities,” said Rep. Randy Neugebauer (R-TX), chairman of the House Financial Services subcommittee on Oversight and Investigations.
“I strongly agree with the inspector general’s findings that at the end of the day, much more needs to be done to ensure that the enterprises and the F.H.F.A. are accountable to the taxpayer and that a strategic plan is implemented to control costs,” he added.
But, you know, considering taxpayers have already lost about $183 billion to these mortgage companies, what’s another $100 million?