President-elect Barack Obama’s newly appointed chief of staff, Rahm Emanuel, served on the board of directors of the federal mortgage firm
Freddie Mac at a time when scandal was brewing at the troubled agency
and the board failed to spot “red flags,” according to government
reports reviewed by ABCNews.com.
According to a complaint later filed by the Securities and Exchange
Commission, Freddie Mac, known formally as the Federal Home Loan
Mortgage Corporation, misreported profits by billions of dollars in
order to deceive investors between the years 2000 and 2002.
Emanuel was not named in the SEC complaint but the entire board was later accused by the Office of Federal Housing Enterprise Oversight (OFHEO) of having “failed in its duty to follow up on matters brought to its attention.”
In a statement to ABCNews.com, a spokesperson said Emanuel served on
the board for “13 months-a relatively short period of time.”
The spokesperson said that while on the board, Emanuel
“believed that Freddie Mac needed to address concerns raised by
Mac agreed to pay a $50 million penalty in 2007 to settle the SEC
complaint and four top executives of the Federal Home Loan Mortgage
Corporation were charged with negligent conduct and, like the company,
agreed to settle the case without admitting or denying the allegations.
The federal government this year was forced to take over Freddie
Mac and a sister federal mortgage agency, Fannie Mae, pledging at least
$200 billion in public funds.
Freddie Mac records have been subpoenaed by the Justice
Department as part of its investigation of the suspect accounting
Emanuel was named to the Freddie Mac board by President Bill
Clinton in 2000 and resigned his position when he ran for Congress in
During the years 2000, 2001 and 2002, according to the SEC, Freddie Mac
substantially misrepresented its income to “present investors with the
image of a company that would continue to generate predictable and
The role of the 18-member board of directors, including Emanuel, was
not addressed in the SEC’s public action but was heavily criticized by
the oversight group (OFHEO) in 2003.
The oversight report said the board had been apprised of the
suspect accounting tactics but “failed to make reasonable inquiries of
The report also said board members appointed by the President,
such as Emanuel, serve terms that are far too short “for them to play a
meaningful role on the Board.”
As a Congressman, Emanuel recused himself from any votes dealing with Freddie Mac until just this year.
In dealing with the nation’s economic crisis, the new White
House chief of staff will almost certainly be involved in discussions
about the house and mortgage markets.
Emanuel’s spokesperson said, “As White House chief of staff he
will work with President-elect Obama and his economic advisers to help
ensure we protect taxpayers and homeowners.”