US home loans giant Freddie Mac was guilty of sloppy accounting and failures of governance, an independent lawyers' report has demonstrated.
Freddie Mac and Fannie Mae are crucial to the US mortgage market
The 107-page outside report, prepared by law firm Baker Botts after a seven-month investigation, was part of the company's response to an accounting scandal that is currently being probed by regulators and the US Congress.
Freddie Mac, one of two large quasi-state companies that underwrite most US mortgages, restated its earnings in June by $1.5bn, after admitting that it had massaged its results for years.
Baker Botts said it had found "issues of (i) accounting policy and financial reporting, (ii) internal control adequacy, (iii) former management's governance practices, and (iv) disclosure policy."
"This is a painful day for Freddie Mac," said Shaun O'Malley, the firm's new chairman.
But he insisted that the financial soundness of the company had never been in doubt.
Freddie Mac has hired PricewaterhouseCoopers to audit its books, having previously relief on the advice of Arthur Andersen, the firm discredited in the collapse of Enron.
But a number of investigations are still proceeding into Freddie Mac, and even into Fannie Mae, its slightly larger rival, so far untainted by accounting allegations.
A number of Congressional hearings are in process, and the Office of Federal Housing Enterprise Oversight (OFHEO), the main regulator, is hiring forensic accountants to investigate the affair.