WASHINGTON – A senior House lawmaker has asked the Justice Department to investigate whether Fannie Mae's former chief executive and former finance chief lied to Congress in sworn testimony in 2004.
Rep. Richard Baker, R-La., chairman of the House panel that oversees the government-sponsored mortgage finance company, disclosed Wednesday that he had made a formal perjury referral to Justice regarding former Fannie Mae CEO Franklin Raines and former chief financial officer Timothy Howard.
The Justice Department has been conducting a criminal investigation of Washington-based Fannie Mae, the largest financer and guarantor of home mortgages in the country.
The company's $11 billion accounting scandal came to light in September 2004 when federal regulators found serious accounting problems and alleged that there was a pervasive pattern of earnings manipulation and lax internal controls. The next month, Raines and Howard testified at a hearing before Baker's panel, the House Financial Services subcommittee on capital markets.
They were asked about an episode in 1998 in which Fannie Mae was said to have improperly put off accounting for $200 million in expenses to future periods so that executives could collect $27 million in bonuses.
Raines testified that "there was no decision made" to defer the accounting for expenses. Howard and Raines both denied that they made accounting decisions with the aim of hitting earnings targets to ensure they received full bonuses.
"It is my belief that Mr. Franklin Raines and Mr. Timothy Howard, while testifying under oath ... on Oct. 6, 2004, failed to testify truthfully, in violation of applicable law," Baker said in a letter dated Tuesday to Kenneth Wainstein, the U.S. attorney for the District of Columbia.
"I request that the Department of Justice conduct an investigation and bring any appropriate prosecution," Baker wrote.
Attorneys representing Raines and Howard didn't immediately return telephone calls seeking comment.
The two executives were swept from office by Fannie Mae's board in December 2004.
Baker first raised accusations of lying by Raines at a hearing last week, saying, "There seems to be clear evidence to my mind that Mr. Raines perjured himself."
Raines is a prominent Washington figure who was a White House budget director in the Clinton administration. He and Howard are among 30 current and former Fannie Mae executives and employees who are being reviewed for possible disciplinary action, termination or forfeiture of their bonuses.
Raines' lawyer, Robert Barnett, said last month that "Mr. Raines has repeatedly stated that he never authorized, encouraged or was aware of violations of generally accepted accounting principles at Fannie Mae for the purpose of smoothing earnings, reaching bonus targets or for any other improper reason. The facts on the record and conclusions from previous reports support this statement."
A conviction for perjury or making false statements to Congress carries prison sentences of up to five years. A spokesman for the U.S. attorney didn't immediately return a call seeking comment.
Fannie Mae was fined $400 million, one of the largest civil penalties ever in an accounting fraud case, in a settlement last month with the Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission. The company also agreed to temporarily cap its mortgage holdings at $727 billion.