Rudman Report on Fannie Mae Released
On February 23, 2006, the independent report was released reviewing Fannie Mae’s accounting and reporting practices, internal controls, and corporate governance and structure prior to 2005. Fannie Mae’s Board of Directors commissioned the report. The “Rudman report” is so-named because former Senator Warren B. Rudman was engaged to lead the private investigation by the Paul, Weiss, Rifkind, Wharton & Garrison law firm and the Huron Consulting Group. In more than 2,000 pages, the report documents already-discovered accounting reporting failures involving hedging complex financial transactions and smoothing earnings reports, the lack of internal controls, and a corporate culture that improperly stressed stable earnings growth.
While the report makes no recommendations for further action, it does confirm that corporate governance and management at Fannie Mae are significant, and praises the new corporate management lead by the current CEO Dan Mudd for undertaking “meaningful substantive and tonal changes” that have improved the company internally and externally. Former Chief Financial Officer Timothy Howard is largely blamed for the accounting failures at Fannie Mae. The report also concludes that former CEO Frank Raines was unaware that the company’s accounting practices departed from GAAP in “significant ways,” but maintains that Raines contributed to a culture that improperly stressed stable earnings.
Most industry observers see little or no impact of the Rudman report on the prospects that Congress will adopt pending GSE reform legislation.
CONTACTS: Jeff Lischer 202-383-1117
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