Franklin Raines and Leland Brendsel, the former CEOs of mortgage finance giants Fannie Mae and Freddie Mac, respectively, were two of the most important and powerful executives in the country. Today, they’re both officially retired from their posts in the wake of accounting scandals that erased billions of dollars in income from the two corporations’ financial statements.

Neither executive has been charged with a crime in connection with the scandals that took place on their watches. Yet some tough questions should be asked about these two executives: Why were they retired instead of fired? Why haven’t they been held responsible for the accounting scandals? Why were they given retirement packages that amount to such outrageous sums of money? Should they have been escorted out of their offices with their personal belongings in cardboard boxes?

It’s a curious turn of events that both Raines, 55, and Brendsel, 62, are now set for life financially, despite the scandals that unfolded at the companies where they worked. Raines owns an estimated $5.5 million of Fannie Mae stock and expects to collect deferred compensation of $8.7 million over the next 15 years, plus a pension of $1.37 million a year for life. Read that last bit again: $1.37 million. Every year. For life. In retirement. Brendsel stands to collect $55 million in post-retirement compensation.

Executives should be responsible for what happens on their watches. If Raines and Brendsel weren’t responsible, they didn’t earn and don’t deserve those huge retirement packages and other benefits. And if they were responsible, they all the more certainly shouldn’t be allowed simply to retire and live out their lives so comfortably at the corporation’s expense.

Regulators at the Office of Federal Housing Enterprise Oversight have asked Fannie Mae to withhold Raines’ compensation pending an investigation into whether his retirement was appropriate. But OFHEO may be unable to take any meaningful action on this situation. The agency, which is the target of Congressional review, has already failed to halt Freddie’s payments to Brendsel.

Reputable CEOs earn huge incomes because they’re supposedly smarter and more capable than their peers. Those big rewards should come with the risk of full responsibility for all of a corporation’s activities, not just the executive’s own direct duties. That means Raines and Brendsel should be held responsible regardless of whether they had personal knowledge of the aggressive tactics being utilized in their accounting departments. If they didn’t know, they should have known.

Questionable accounting methodsmight seem like a victim-less crime. After all, no one was murdered or assaulted, and the two mortgage corporations may yet find a way to convince regulators their accounting wasn’t fraudulent. Either way, some Fannie Mae and Freddie Mac shareholders no doubt believe they were robbed. Fannie Mae’s stock dropped more than $17 per share from a high of $80.82 in early 2004 to a low of $62.95 in September 2004. Freddie Mac’s shares also posted a price gap of more than $17 from a high of $74.20 to a low of $56.45 during the last 52 weeks. Fannie Mae and Freddie Mac shares recently traded at $67.69 and $70, respectively.

Fannie Mae’s true financial position was so much weaker than its faulty financial statements indicated that federal regulators required the adoption of a new capital plan. The sale of $5 billion of preferred stock to institutional investors diluted and consequently further devalued existing shareholders’ investments. A cut in Fannie Mae’s first-quarter 2005 per-share dividend from 52 cents to 26 cents was yet another adverse action for investors.

Investors, homeowners and the general public deserve a full and accurate report of why executives at Fannie Mae and Freddie Mac manipulated corporate earnings to the detriment of investors’ interests. The Securities and Exchange Commission has opened investigations, and shareholders have sued Fannie Mae and Freddie Mac for civil damages. However, it could take years before the regulatory or judicial system decides whether to hold the corporations or their executives responsible for the investors’ losses. Indeed, it took seven years for a jury to find one former Cendant Corp. executive guilty in a securities fraud that involved CUC International, which merged with Cendant in 1997.

While the shareholders wait for the wheels of justice to turn, Raines and Brendsel will sit tight in early retirement and collect their millions. They both may be innocent of any crimes or wrongdoing. But based on the information that’s so far available, it all smells rather rotten.

Chief executives who turn a blind eye to corporate shenanigans shouldn’t be allowed to rob the shareholders, and then ride off into the sunset of a cushy retirement.

Marcie Geffner is a real estate reporter in Los Angeles.


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