U.S. District Judge Paul Crotty allowed the Securities and Exchange Commission to take Daniel Mudd to trial over allegations of hiding Fannie Mae's exposure to risky loans worth $441 billion which led to the financial crisis in 2008. The former chief executive of the mortgage finance agency previously appealed to the court to have the trial dismissed, when other Fannie Mae executives have settled.
Crotty ruled Tuesday, March 1, that the SEC could pursue trial against Mudd for exposing subprime loans and Alt-A loans when he was the SEC head, Reuters reported. The regulator claimed it has obtained evidence that the exposure to such loans and the subsequent disclosures were misleading. "From these facts, a rational jury could infer that Mudd acted with intent or recklessness," Crotty wrote n his ruling.
In 2011, two of Fannie Mae's executives, former chief risk officer Enrico Dallavecchia and former chief of the single-family operation Thomas Lund, settled with the SEC for $35,000, over the same charges, reported HousingWire. The three officials excluded disclosures of loans worth about $100 billion to borrowers with questionable credit scores.
Aside from Fannie Mae, executives from Freddie Mac including former chief executive Richard Syron were accused by the SEC for similar charges. Freddie Mac's officials settled the case for $310,000, HousingWire noted.
Mudd, however, was the only former executive who did not settle, asserting that the SEC did not show that he defrauded investors. In January, Mudd's lawyers urged the court to dismiss the case, claiming that the regulator failed to show proof of their allegations, Reuters noted earlier.
"They have to come up with hard evidence, and they haven't been able to do that because it's not there," Mudd's lawyer, John Keker, was cited during a hearing in Manhattan.
With Crotty's ruling, however, Mudd will have to face trial by jury. The case is filed under the U.S. District Court at the Southern District of New York.
