MI Co. Sued Over Role in Fannie Accounting Fraud

Radian joins a growing group of defendants.

Franklin alleged in the court 347-page court filing that a Radian subsidiary sold at least one “finite insurance” policy to the government sponsored housing enterprise which did not transfer sufficient risk to the insurer to qualify as insurance for accounting purposes. Franklin charged that in collusion with Fannie and with the parent group’s knowledge, the subsidiary disguised its product as insurance, “when it was actually only a loan to Fannie Mae which Fannie Mae improperly accounted for as insurance in order to mask known losses.”

Radian general counsel Howard Yaruss said the allegations have no merit and that Radian will soon be filing a motion to dismiss.

The plaintiffs, affiliates of Franklin Templeton Investments, say they paid $350 million over four years to purchase Fannie’s common stock. The institutional investors say they lost over $45 million as a result of their purchase of the securities and the decline in value following the revelation that Washington, D.C.-based behemoth had released false financial information.

Radian Group says is a global credit risk management company with more than 1000 employees in the U.S. and the United Kingdom. Radian Group offers products and services for mortgage insurance, financial guaranty and financial services.

Fannie has acknowledged faulty financial statements from January 2001 through the second quarter of 2004 must be restated. It is believed to be one of the largest restatements in American corporate history.

The secondary mortgage giant reached a settlement earlier this year requiring it to pay a $400 million penalty and to implement several corrective measures.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: burdenlisa@yahoo.com