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Ex-Fannie Mae CEO urges U.S. judge to toss SEC fraud case

Former chief executive of Fannie Mae Daniel Mudd exits U.S. District Court in the Manhattan borough of New York City, January 27, 2016, after attending arguments in the Securities Exchange Commission (SEC) case against him. REUTERS/Mike Segar - RTX249UI

By Nate Raymond

NEW YORK (Reuters) - Daniel Mudd, the last holdout among former top Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) executives accused of concealing risky mortgages that fueled the financial crisis, told a judge on Wednesday a U.S. regulator's lawsuit seeking to hold him responsible should be thrown out.

A lawyer for Mudd, who was Fannie Mae's chief executive, said the U.S. Securities and Exchange Commission failed to prove his client fraudulently concealed more than $441 billion of risky home loans before the government seized the mortgage finance company in September 2008.

"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, said during a hearing in Manhattan federal court before U.S. District Judge Paul Crotty.

The SEC sued Mudd, who ran Fannie Mae from 2005 until the seizure, and two colleagues in December 2011, on the same day it filed a similar lawsuit against former Freddie Mac Chief Executive Richard Syron and two of his colleagues.

Although the cases are among the SEC's biggest arising from the 2008 financial crisis and mortgage meltdown, the other five defendants reached small settlements, none exceeding $250,000.

Mudd has refused to settle, saying the SEC has not shown he defrauded investors.

Richard Hong, an SEC lawyer, urged Crotty to let Mudd's case go to trial, saying Mudd knew Fannie Mae was using an overly narrow definition of what constituted a subprime loan, allowing it to understate its exposure.

"He independently knew when he was making these public disclosures that they were contrary to his understanding," Hong said.

The SEC said Fannie Mae concealed exposure to more than $100 billion of subprime loans and $341 billion of Alt-A loans, a category between prime and subprime.

U.S. regulators seized Fannie Mae and Freddie Mac on Sept. 7, 2008, just over a week before Lehman Brothers Holdings Inc went bankrupt, and put them into a conservatorship.

In September, Fannie Mae's former chief risk officer, Enrico Dallavecchia, and former Executive Vice President Thomas Lund agreed to pay $25,000 and $10,000 respectively to settle their SEC cases.

Five months earlier, Syron and former Freddie Mac executives Patricia Cook and Donald Bisenius settled their respective cases for $250,000, $50,000 and $10,000 respectively.

(Reporting by Nate Raymond; Editing by Peter Cooney)