<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Jonathan Weil</p> <p>Time for a pop quiz. See if you can spot what's wrong with this sentence from the Securities and Exchange Commission's lawsuit last week against former Fannie Mae chief executive officer Daniel Mudd:</p> <p>"Additionally, during the relevant period Mudd was a member of the board of directors, the audit committee, a regular attendee at the board's risk policy and capital committee meetings, held regular weekly meetings with his direct reports the business units, and attended quarterly business unit briefings."</p> <p>Give up? Here's a hint. The SEC made the same mistake again later on in this sentence of the complaint:</p> <p>"Also, as a member of the audit committee at Fannie Mae and the board of directors, Mudd participated in final committee and board reviews of Fannie Mae's Forms 10-K and Forms 10-Q during the relevant period prior to certifying."</p> <p>If you answered that it was an error to say Mudd was on Fannie's audit committee, give yourself a gold star. Mudd not only wasn't a member, he couldn't have been one, under SEC rules and New York Stock Exchange listing <a href="http://www.nyse.com/pdfs/section303A_final_rules.pdf">standards</a>. That's because, as Fannie's <a href="http://www.sec.gov/Archives/edgar/data/310522/000095013308001442/w48664def14a.htm#105">proxy statement</a> made clear,  he wasn't an independent director. Rather, as CEO, Mudd was part of Fannie's management, which the audit committee was responsible for overseeing.</p> <p>An SEC spokesman, John Nester, confirmed that the statements were in error. He declined further comment.</p> <p>(Jonathan Weil is a Bloomberg View columnist. Read his previous coverage of the SEC lawsuit <a href="http://www.bloomberg.com/news/2011-12-22/sec-s-fannie-freddie-suits-miss-the-enablers-commentary-by-jonathan-weil.html">here</a>.)</p> </body> </html>