On Dec. 16, 2011, the SEC charged three former top executives of the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud. The SEC alleged that the executives "knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans." Yesterday, however, the SEC's case against the Freddie Mac executives fizzled out in an unusual settlement in which the agency and the three executives agreed that "no party is the prevailing party.”

In its 2011 complaint, the SEC claimed that the former Freddie Mac executives led investors to believe that the firm was disclosing all of its Single-Family subprime loan exposure, and that the Single Family business had "basically no subprime exposure." The SEC charged that, to the contrary, as of December 31, 2006, "Freddie Mac's Single Family business was exposed to approximately $141 billion of loans internally referred to as 'subprime' or 'subprime like,' accounting for 10 percent of the portfolio, and grew to approximately $244 billion, or 14 percent of the portfolio, as of June 30, 2008."

In the settlement approved yesterday, the three former executives all agreed to refrain from signing certain reports required to be filed with the Commission for specific periods, and each agreed to donate the following amounts to a Fair Fund established for investors: $250,000 for former Chairman of the Board and CEO Richard F. Syron, $50,000 for former Executive Vice President and Chief Business Officer Patricia L. Cook, and $10,000 for former Executive Vice President for the Single Family Guarantee business Donald J. Bisenius.

The NYT reports that in addition to the provision in the settlement regarding no prevailing party, the settlement also includes the very unusual language that “the parties agree, without conceding the strengths or weaknesses of their respective claims and defenses, that it is not in the interest of justice to continue to litigate this matter.”  Or, as Matt Levine put it in his Bloomberg View column, "basically they got bored and decided to stop having a lawsuit."

The lack of the standard "neither admit nor deny" language in the SEC settlement also left the defendants free to deny any wrongdoing in the case--which at least one defendant has already done. In a press release issued yesterday, Bisenius stated that "I am gratified that the SEC has agreed to end its case against me. The dismissal of the case today under these terms vindicates me completely."

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