| -Caveat Lector-
This still doesn't compute. This is all double talk to hide something else.
We won't know anything until the balance sheet becomes available sometime next
year. Could there be a huge amount of cash and/or negotiable securities missing?
- JR
Freddie Mac Details Accounting Corrections By Kathleen Day and David S. Hilzenrath Mortgage financing giant Freddie Mac today reported corrected financial
statements for the past three years, including the disclosure that it inflated
its $4.1 billion in reported earnings for 2001 by nearly $1 billion. Until now officials of the McLean-based firm have said Freddie's errors were
different from those of scandal-ridden companies such as Enron Corp. and
WorldCom Inc. because Freddie understated its earnings. "In stark contrast to other recent corporate restatements, we expect Freddie
Mac's restatement to show a large cumulative increase in earnings for the prior
years," Freddie Mac Director George D. Gould told the House Financial Services
Committee on Sept. 25. While that's still true -- the cumulative revision for the years 2000, 2001
and 2002 adds more than$4.5 billion to reported profits -- Freddie had not said
before that it had inflated profits in any period during that time. Today's
announcement also disclosed additional examples of transactions company
executives undertook to manipulate earnings. The company said that for the period ended Dec. 31, 2002, its restated
earnings will increase by $5 billion, which includes an earnings increase of
$4.3 billion for 2002, an earnings decrease of $989 million for 2001, an
earnings increase of $1.1 billion for 2000 and an increase of $600 million for
prior years. The company said that while overall it understated cumulative profits for the
years 2001 and 2002, it also for the first times said that for five out of eight
quarters in that period it overstated profits. Sizeable underreporting in the
remaining three quarters wiped out the overstatements by the end of the period.
The company also said that it does not expect to be able to release accurate
results for 2003 until the middle of 2004. Critics said Freddie Mac should have disclosed much sooner the possibility
that it inflated profits and not just understated them. Its failure to do so has
misled investors, they said. "Throughout Freddie Mac's restatement process, we've been assured by Freddie
Mac and its representatives that there are no Enron comparisons to be made, as
this is a problem of too much money, not too little," said J.C. Watts, chairman
of FM Policy Focus, a collection of financial-services companies that compete
with Freddie. In a report to investors, debt-rating firm Standard & Poor's Corp. said
news of the one year of inflated earnings "adversely changes the character of
the accounting controversy" because it reflects an "even more volatile true
earnings profile." Freddie's stock closed Thursday at $55.64, up 92 cents, after news reports of
the one year of inflated profits. Freddie Mac executives did not defend their
silence about the $1 billion 2001 overstatement during a conference call this
morning with Wall Street analysts because they were not asked about
it. But sources say that the new company accountant did not confirm until early
Thursday morning that the revised numbers were correct so the company could not
have disclosed the accurate numbers much sooner. Some investment analysts expressed
disappointment that the company has not been able to report earnings for any
quarter of 2003 and won't be able to do so until next year.
Freddie Mac officials also did not address in today's conference call whether
the $1 billion overstatement for 2001 inaccurately boosted that year's
compensation for top officials. The company proxy statement for that year said bonuses for the two top
executives "were based primarily on corporate performance," including earnings.
It showed the board of directors awarded then-chairman and chief executive
Leland Brendsel a cash bonus of $2.1 million on top of his $1.1 million salary.
David W. Glenn, who was vice chairman and president, received a $1.3 million
bonus on top of an $850,000 salary. Gregory J. Parseghian, who was chief
investment officer, received a $750,000 bonus on top of a $1 million salary. During 2001, Glenn exercised options on Freddie stock worth $6.8 million and
Parseghian exercised $11.6 million in stock options, the report said. James R. Doty, an attorney who led an
investigation of the accounting errors for the Freddie Mac board, said Thursday
that he did not examine the effect of the accounting misstatements on executive
pay. The company reported earlier this year -- in a
management shakeup that eventually cost Brendsel, Glenn and Parseghian their
jobs -- that it has used accounting manipulations to smooth profit swings so
Freddie could meet Wall Street's expectations of steady earnings growth. Freddie executives also noted today that they have repeated said that the
corrected numbers would show the company's earnings as much more volatile now
that it is accounting properly for the use of complex financial contracts known
as derivatives to hedge against risks. Changing accounting practices for 2000 affected that year's results, which in
turn helped change the numbers in 2001, which in turn affected results for 2002,
they said. The company initially reported $2.55 billion in net income in 2000, a figure
that are now be reported as about $3.7 billion, the company officials said.
Profit for last year, announced first as $5.76 billion, will be restated $4.3
billion higher, they added, to bring it to $10.1 billion. Under securities rules, when a company corrects its earnings it only has to
go back three years, so it is impossible to know if Freddie's earnings for
periods before 2000 are correct. In July, the company's board released a report on the results of an internal
probe of its problems, which concluded that Freddie Mac used complex deals to
"transact around" accounting rules that would have made its earnings more
volatile. In August, Parseghian, whom the board had chosen to replace Brendsel,
was forced to announce his departure after federal regulators said he was too
involved in the company's missteps to remain at the helm. Parseghian is still at
Freddie as acting chief executive, however, while a replacement is sought.
Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://www.mail-archive.com/[EMAIL PROTECTED]/ <A HREF="">ctrl</A> ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om |
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