MCLEAN, VA-Mammoth mortgage financing firm Freddie Mac has released the independently prepared report assessing alleged accounting misdoings in earnings statements over the last three years, and the picture is not a pretty one. The 107-page document, which law firm Baker Botts LLP presented to the Board of Directors following the legal team’s seven-month investigation, indicates that certain top dogs at the company created a web of accounting procedures that were deliberately designed to skew earnings.

The analysis concludes that these deceptive practices–predominantly held together by former chairman and CEO Leland C. Brendsel, who chose to resign amid the controversy, and ousted former president and COO David Glenn–along with an injurious absence of technical skill at the top tiers of corporate accounting, led to a misstatement of earning ranging from $1.5 billion to $4.5 billion for the years 2000 through 2002. “It was well understood throughout the organization that the tone of ‘steady Freddie’ came from its chief executive officer: Employees in Funding & Investments, Corporate Accounting and other business units were expected to take actions that would help achieve the goal of steady, nonvolatile earnings growth,” the investigators note in the report’s executive summary.

And while Board of Directors chairman Shaun F. O’Malley concedes in a conference call that, “this is a painful day for Freddie Mac,” company officials reiterate their belief that the new leadership team–headed by recently installed president and CEO Gregory J. Parseghian, who had been the chief investment officer–will be able to steady the ship. “Martin Baumann, our new CFO is leading the ‘charge’ to remedy accounting issues at the company,” Freddie Mac spokesman Douglas Robinson shares with “It’s been reported that we’ve returned more profits in accounting and we’re continuing to increase the expertise, knowledge, and depth of our accounting control functions. We’ve shared our remediation plan, with respect to accounting, with our regulators.”

Some of those on the outside, looking in, are skeptical about Freddie Mac’s house cleaning at the top. The report notes that Greg Parseghian, in his previous role as CIO, was aware of some of the questionable accounting transactions, but board members have already concluded that he was made to believe that those dealings were perfectly valid. Robinson defers to O’Malley’s conference call comments on the matter. “I want to say again that we have the right chief executive officer in Greg Parseghian leading our business,” O’Malley explains in a statement. “Greg is a person of considerable talent, deep expertise and unquestioned integrity and he is uniquely positioned to lead our drive toward the highest standards of financial reporting and disclosure.”

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