As if it is not bad enough that taxpayer money (in the amount of more than $100 million) is being used to defend Fannie Mae executives accused of accounting fraud, taxpayers stand to be on the hook for the damages if those executives are convicted. Investors who are suing government-controlled Fannie Mae for the losses that they sustained due to “alleged corporate mismanagement [and] shareholder feuds” are demanding billions in compensation. If Fannie Mae loses, the government has to pay up – and that means the taxpayers have to pay up as well.
Randy Neugebauer (R-TX), calls the situation a catch-22, pointing out that either way, taxpayers are going to suffer and the investors, as taxpayers, have suffered and will continue to do so both as investors and taxpayers. “The only people benefitting on this are lawyers,” he said. On the other hand, “30 million specific individuals…were wronged” according to lead plaintiff Ohio attorney general Mike DeWine,who believes that some type of compensation is mandatory from Fannie Mae regardless of extenuating circumstances.
Fannie Mae is required to pay defense costs due to legal indemnification agreements with former executives. The government agreed to take over these agreements when it placed the GSE in conservatorship. Neugebauer insists that the federal government did not have to take over these agreements and could have refused to do so at the time of entrance into conservatorship. Other officials disagree, saying that not only would overturning the contracts have been “inappropriate and possibly unconstitutional,” but that it would have made it difficult to attract other skilled professionals to the company.
The entire issue is becoming more convoluted as the federal government makes clear its intentions to attempt to unwind or otherwise diminish both Fannie Mae and Freddie Mac in the coming years.