Federal regulators noted a growing string of high profile scandals at major U.S. corporations in recent years. The number of fraud cases investigated by the Securities and Exchange Commission jumped 41 percent in the last three years (112 cases in 2001 compare to 79 cases investigated in 1998), resulting in tens of millions of dollars in fines to settle the charges.
I have decided to take a closer look at Fannie May. This company operates in the residential mortgage finance industry. It facilitates the flow of mortgage capital to increase the availability of homeownership for low, moderate, and middle-income Americans. Its lender customers are part of the primary mortgage market, where mortgages are originated and …show more content…
Mr. Howard will receive only his accrued base salary until his termination date if his resignation is seen as a termination by the employee without good reason. Vested options will remain exercisable.
Had Raines' departure been treated as termination for cause, his benefits would have been somewhat different. Under his most recent employment contract, Raines would have received salary and incentives pro rata to service, but all unvested options would have been forfeited and any options that were granted after the employment agreement (on or after July 1, 2004) would also be cancelled. In addition, his pension would have been reduced by 50%.
However, on September 17, 2004, just 5 days before the company first announced OFHEO's initial investigation, Raines received a letter from Anne Mulcahy, who was chairman of the Compensation Committee at the time and who resigned shortly after the investigation first began. The letter proposed amendments to Raines' employment agreement. Of course, it turned out that the changes did not affect Raines' benefits because he has not been terminated for a cause and allowed to take early retirement.
It is certain that some of the actions taken by the compensation committee in amending employment agreements in this atmosphere caused considerable concern. But it is also certain that the board, in allowing Raines to take early retirement rather than taking positive action themselves, has not acted in the best interests of stockholders.