Feds tell Freddie Mac to oust CEO

reuters | August 22, 2003: 9:24 AM EDT

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Feds tell Freddie Mac to oust CEO

Regulators push mortgage company to remove Parseghian over accounting scandal, news reports say. August 22, 2003: 9:24 AM EDT

WASHINGTON (Reuters) - Federal regulators have told Freddie Mac it must remove Greg Parseghian as the company's chief executive due to his role in improper accounting practices at the U.S. mortgage finance company, according to reports published Friday.

Citing sources, a report in the Washington Post said regulators from the Office of Federal Housing Enterprise Oversight (OFHEO) told Shaun O'Malley, the chairman of the company's board of directors, and at least one other director, at a meeting Wednesday that Parseghian had to step down.

"I can confirm that we have met with Freddie Mac (FRE: Research, Estimates) and those discussions include discussions about current management," an OFHEO spokesman was quoted as saying.

Freddie Mac spokesman David Palombi confirmed that officials have been meeting with the head of the OFHEO "to learn his views, including concerns about members of current management as well as management structure," the Post reported.

The participants discussed possible replacements for Parseghian and what, if any, role he could continue to play at the company, the paper reported. The Wall Street Journal reported Friday that Freddie Mac was on the verge of removing Parseghian, 42, as chief executive.

But the Journal also cited people familiar with the situation as saying that he could continue to remain with the mortgage company in a senior position. The Post said Parseghian declined to be interviewed Thursday and the Wall Street Journal said he had no comment. A Freddie Mac spokesman was not immediately available for comment early Friday.

Freddie Mac named Parseghian CEO in June when it swept out its top management team in the midst of an accounting probe. The company was asked by the Office of Federal Housing Enterprise Oversight to remove him, according to the Washington Post.

But Freddie Mac said it was premature to speculate on the nature or timing of resolving OFHEO's concerns

Freddie Mac shook financial markets in June when it replaced its top three executives because of problems unearthed in an accounting probe. It fired President David Glenn, while Chairman and CEO Leland Brendsel retired and Chief Financial Officer Vaughn Clarke resigned. All are defendants in a shareholder lawsuit in New York federal court.

As chief investment officer, Parseghian had been involved in many of Freddie Mac's questionable accounting activities, according to a report prepared by James Doty, former U.S. Securities and Exchange Commission general counsel and a partner in the law firm Baker Botts. The report said executives massaged earnings to create an aura of a "steady Freddie" that could generate consistent, predictable financial results.

Investors have said the report, released in July, cast doubt on the future of Parseghian and Freddie Mac's near-term stability. Freddie Mac has said it will restate profit upward by between $1.5 billion and $4.5 billion.

Freddie Mac shares rose 37 cents to $50.77 on New York Stock Exchange trade Thursday.