Ohio Attorney General Jim Petro on Thursday launched an investigation into mortgage heavyweight Fannie Mae to find out whether the company’s accounting practices caused any losses to Ohio’s public pension funds. Petro last year sued Fannie’s rival company Freddie Mac on allegations that the company’s accounting methods caused Ohio’s pension funds to lose more than $25 million in stock value.

In the last week, Fannie Mae’s stock has dropped 18 percent, equivalent to $16 billion in market capitalization. The U.S. Congress has launched a committee hearing on the firm’s accounting woes, and the Office of Federal Housing Enterprise Oversight issued a scathing report on Fannie Mae. In addition, the Securities and Exchange Commission launched an informal investigation, and several news sources this week reported the U.S. Department of Justice has opened its own investigation.

“Our goal is to determine if there were losses of funds invested on behalf of members of the public pension systems in Ohio,” Petro said.

The Ohio Attorney General said he will examine the time frame of October 1999 through September 2004, and attempt to determine whether the state’s pension funds have been damaged and to what extent. Ohio’s public pension funds include the Ohio Public Employees Retirement Systems, State Teachers Retirement System, Ohio Police and Fire, Ohio Highway Patrol Retirement System and School Employees Retirement System.

Fannie Mae is one of the largest financial institutions in the world, with $1 trillion in reported assets and $961 billion in reported debt as of Dec. 31, 2003. Both Fannie Mae and Freddie Mac, its smaller rival, are shareholder-owned but chartered by the U.S. Congress to maintain a constant flow of mortgage funds for the nation’s housing market.

A Congressional hearing regarding recent events at Fannie Mae is scheduled for Wednesday. OFHEO Director Armando Falcon and Fannie Mae Chairman Franklin Raines, CFO Tim Howard, and Ann McLaughlin Korologos, who presides over Fannie Mae’s Board of Directors, are scheduled to testify.

Last year, Freddie Mac restated $4.5 billion in earnings, replaced three top executives and underwent investigations by the Justice Department and the SEC. The company was issued a $125 million fine.

The accounting irregularities at Freddie Mac caused OFHEO to open an investigation into Fannie Mae.

***

Send tips or a Letter to the Editor to jessica@inman.com or call (510) 658-9252, ext. 133.

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