March 1, 2016 / 5:55 PM / 2 years ago

Ex-Fannie Mae CEO loses bid to toss SEC fraud case

NEW YORK, March 1 (Reuters) - Former Fannie Mae Chief Executive Daniel Mudd has lost his bid to dismiss a lawsuit by U.S. securities regulators accusing him of concealing the mortgage finance agency’s exposure to risky loans that fueled the 2008 financial crisis.

U.S. District Judge Paul Crotty in Manhattan on Monday ruled the Securities and Exchange Commission could take Mudd to trial over claims he concealed $441 billion of risky loans before Fannie Mae’s September 2008 government seizure.

Crotty ruled that a jury could find that Fannie Mae’s disclosures about its exposure to subprime loans and Alt-A loans, a category between prime and subprime, misleadingly excluded billions of dollars worth of mortgages.

Crotty said the SEC had also put forward evidence from which a jury could conclude Mudd knew or should have known that public statements he made about Fannie Mae’s exposure to risky loans, as well as the company’s disclosures, were false or misleading.

“From these facts, a rational jury could infer that Mudd acted with intent or recklessness,” Crotty wrote.

A lawyer for Mudd did not immediately respond to a request for comment. An SEC spokeswoman declined to comment on Tuesday.

The SEC sued Mudd, who ran Fannie Mae from 2005 until the seizure, and two colleagues in December 2011, on the same day it filed a similar lawsuit against former Freddie Mac CEO Richard Syron and two of his colleagues.

Although the cases are among the SEC’s biggest arising from the 2008 financial crisis and mortgage meltdown, the other five defendants reached small settlements, none exceeding $250,000.

Mudd has refused to settle, saying the SEC has not shown he defrauded investors.

The SEC said Fannie Mae concealed exposure to more than $100 billion of subprime loans and $341 billion of Alt-A loans.

U.S. regulators seized Fannie Mae and Freddie Mac on Sept. 7, 2008, just over a week before Lehman Brothers Holdings Inc went bankrupt, and put them into a conservatorship.

In September, Fannie Mae’s former chief risk officer, Enrico Dallavecchia, and former Executive Vice President Thomas Lund agreed to pay $25,000 and $10,000 respectively to settle their SEC cases.

Five months earlier, Syron and former Freddie Mac executives Patricia Cook and Donald Bisenius settled their cases for $250,000, $50,000 and $10,000, respectively.

The case is U.S. Securities and Exchange Commission v. Mudd, U.S. District Court, Southern District of New York, No. 11-9202. (Reporting by Nate Raymond in New York; Editing by Richard Chang)

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