Investigations into accounting irregularities shouldn't be used to restrict the company, but executives who benefited should be held accountable.
Published December 29, 2004
One of the more infuriating aspects of the corporate accounting scandals of the last few years has been seeing executives walk away with obscene compensation packages while their companies lay in ruins. By reporting rosy profits through accounting tricks, high-level executives were able to inflate the stock price and cash in on stock options and bonuses, while keeping the company's true financial health from stockholders and employees.
In some cases, such as those involving Enron Corp. and HealthSouth Corp., efforts have been made to recoup some of that money. So too should the stakeholders in the mortgage finance giant Fannie Mae seek the return of any unjustly earned compensation of Franklin Raines, its former chairman and chief executive, as well as other executives.
Last week, Raines was forced out of the position he had held since 1999 after regulators found accounting irregularities that put the nearly $1-trillion operation on the verge of financial instability.
Fannie Mae has been a vital player in making homeownership more available to low- and middle-income Americans since its creation by Congress and President Franklin D. Roosevelt. While not offering mortgages directly, Fannie Mae buys mortgages from other lenders, thereby freeing those banks to do more home lending. Some of those mortgages are then converted into securities, which invites the substantial capital of Wall Street to help underwrite homeownership.
In September, a regulatory agency found that Fannie Mae had finessed expenses so that earnings would match projections, resulting in enormous bonuses and incentive pay for the company's upper management. In concurring that accounting rules were flouted, the Security and Exchange Commission ordered the company to restate earnings for the last three and a half years, which may mean declaring $9-billion in losses.
Now questions are focusing on Raines, who earned $14-million in salary and bonuses and an added $25.6-million in incentive pay over the last three years. He left with stock options valued last year at nearly $12-million and may receive a pension of more than $1.3-million annually for the rest of his life.
Just how much of this compensation was tied to the cooked books? That question needs to be answered by the oversight agency, the Justice Department or Congress, all of which have either launched or expect to launch investigations. Any undue compensation should be returned and possible fines levied as a warning to other executives who try these tricks as a means of self-enrichment. Congress should also focus on why a company that operates under a quasi-governmental aegis is giving executives such wildly extravagant compensation packages.
Congressional Republicans have long looked askew at Fannie Mae, seeking opportunities to privatize it entirely or restrict its ability to do business. Any move in that direction could hamper the ability of many working Americans to become homeowners. This scandal shouldn't be used as an excuse to bring Fannie Mae to its knees. A thorough investigation is called for, as is some additional regulation and oversight. And Fannie Mae executives who are found to have abused their trust and broken the law should be held accountable for their greed and misdeeds.
