| Quota Yes, Quality Not |
Raines with Clinton |
Proving you
can fool most of the people most of the time until you get caught,
Franklin Raines, who reigned for 5 years following Clinton's
appointing him as CEO of Fannie Mae, the US' quasi-governmental
mortgage house, has been ousted. |
| There are several
ongoing investigations of Fannie Mae's operations and accounting practices
covering the last
5 years in order to determine when accounting irregularities started and the magnitude of
the financial shortfalls. Current estimates
indicate that there was a $9 billion misstatement of earnings
and accounting irregularities between
2000-2004. |
|
Former chief
executive Franklin Raines received more
than $40 million in bonuses and other pay as a result of
falsely inflated earnings at the
US' largest mortgage finance company. This
is according to a supplement of a lawsuit filed by Ohio
Attorney General Jim Petro. Fannie Mae added "tens of millions of
false revenue" to meet "Raines' 1999 publicly announced goal to
double" earnings over the next five years,
Petro's November 23, US District Court in
Washington alleges. The filing
alleges that, "Raines personally profited
by over $40 million by this false earnings history. |
|
Update
-- 2/22/2006:
Former Senator Warren Rudman's team of
investigators and auditors selected from
his law firm, Paul, Weiss, Rifkind, Wharton & Garrison, and from
Huron Consulting Group presented their 600-page
report calling Fannie Mae's accounting
systems "grossly inadequate."
It is based on a review of millions of documents. |
|
The
report found that accounting obfuscations were intended to increase
stock valuations, thus increasing executive bonuses. |
|
Raines was one
of the most influential and politically savvy figures in Washington
is identified by the Rudman
investigation as not directly knowing that
Fannie Mae's accounting practices violated rules.
The report does state, "We did find, however, that Raines
contributed to a culture that improperly stressed stable earnings
growth and that... he was ultimately
responsible for the failures that occurred on his watch". |
Raines
will continue to live well being supported by Fannie Mae's shareholders.
Some relevant facts include:
-- Raines and his wife will be paid $114,393 a month as long as they live.
-- Stock options: Raines holds vested stock options worth
roughly $5.7 million.
-- Stock bonuses: Raines was granted awards, payable in
stock, for reaching performance goals. Under the program, he got 69,577 shares... half of
what Fannie determined he should receive in January. At Monday's close, the shares are
worth $4.9 million. It is unclear if he will receive the rest.
-- Deferred pay: For tax planning while employed by the company,
Raines was allowed to put off the receipt of payment. These deferred past payments total
$8.7 million
-- Future salary: Although Fannie
Mae says Raines' retirement was
effective December 21, 2004, he is seeking to have it effective as of June 22, 2005, and thereby
receive $600,000 more in pay. |
| Mr. Raines followed a
well-worn path in the United States during the later half of the 20th
century. His humble beginnings were in Seattle. He won a scholarship to Harvard and was a
Rhodes Scholar at Oxford. He worked on Wall Street for over a decade in the prestigious
firm Lazard Freres. He was a member of President Clinton’s cabinet and director
of his Office of Management and Budget. In 1999, Clinton selected him for the position of
Fannie Mae CEO. |
| Following revelations
of the financial scandal, Mr. Raines took early retirement from Fannie Mae so that he
could collect a compensation package including $1 million per year for life and $11
million in vested stock. In 2003 Mr. Raines was paid $20 million in salary and bonus. |
| Fannie Mae is facing
criminal investigations by the Justice Department, operational investigations by the SEC,
and various Congressional investigations. There are questions regarding earnings
statements being incorrectly inflated. In 2003, if derivative and other losses had been
included, no bonuses would have been paid to top executives. However, deferral of the
losses allowed declared earnings to reach a level which triggered maximum executive
bonuses. |
| It is a far stretch
to imagine that Franklin Raines actually was capable of satisfying the requirements of the
positions he held from Harvard to Director of the White House Office of Management and
Budget. If he had been competent enough to hold those positions, how could he have been
Fannie Mae's CEO for 5 years and allowed, not known about, or not understood that
$9,000,000,000 was being mishandled. |
|
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