Now that the Securities and Exchange Commission has won its first case against a player in the financial crisis, will it be able to reel in bigger fish — like the former CEOs of mortgage giants Fannie Mae and Freddie Mac?
Fabrice Tourre, a former Goldman Sachs vice president, was found liable of securities fraud for misleading investors in a complex subprime-mortgage deal. The SEC had also charged Goldman Sachs, but the investment bank settled for $550 million without admitting wrongdoing.
That’s usually been the outcome of SEC legal actions to punish people and companies for alleged misconduct before and during the financial crisis. In more than 150 cases, including charges against 66 CEOs and senior executives, the SEC has garnered more than $2.6 billion in penalties and fines, but not a single guilty verdict.
New SEC chief Mary Jo White has said she is determined to press companies and individuals for admissions of guilt. And the SEC is expected to move more boldly against other former executives charged with financial-crisis era mischief.
The SEC has pending cases against 18 senior financial executives. The most prominent defendants are Daniel Mudd, former CEO of Fannie Mae, and Richard Syron, former chairman and CEO of Freddie Mac. The SEC sued them and four senior Fannie and Freddie executives in 2011 for allegedly misleading investors about how many risky subprime mortgages the then government-backed — now government-owned — agencies had guaranteed. Both former CEOs and the other defendants have denied any wrongdoing. They tried but failed to have the lawsuit dismissed.
Other SEC cases target executives at United Commercial Bank, a San Francisco bank whose collapse was among the 10 largest bank failures and cost the FDIC $2.5 billion. Also facing fraud charges are the top executives at Thornburg Mortgage, once a leading provider of so-called jumbo home loans, mortgages over $417,000. The company filed for bankruptcy in 2009.
While the SEC pushes for guilty admissions or verdicts in its six remaining cases against executives, the window is closing on its ability to file new lawsuits. The statute of limitations for several securities law violations is five years — and the fifth anniversary of the financial crisis is one month away.