Perhaps trying to make up for the smackdown they took at the hands of Judge Jed Rakoff, who accused them of letting big banks get off scot-free, the Securities and Exchange Commission filed civil charges against six former executives at Fannie Mae and Freddie Mac, including the CEO, accusing them of securities fraud.

Federal regulators have charged six former executives — including former CEOs — at mortgage giants Fannie Mae and Freddie Mac with securities fraud, alleging they misled investors about their exposure to risky subprime mortgage debt.

The Securities and Exchange Commission said it sued three former executives at Fannie Mae and three at Freddie Mac Friday. The civil charges were filed in two separate lawsuits in federal court in New York City. Among those charged were former Freddie Mac CEO Richard Syron and former Fannie Mae CEO Daniel Mudd.

“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, Director of the SEC’s Enforcement Division. Khuzami added that these misstatements “misled the market about the amount of risk on the company’s books.”

The SEC said both firms have agreed to cooperate with the agency and have entered into non-prosecution agreements.

Here’s the release from the SEC. By signing non-prosecution agreements, Fannie and Freddie “agreed to accept responsibility for its conduct and not dispute, contest, or contradict the contents of an agreed-upon Statement of Facts without admitting nor denying liability. Each also agreed to cooperate with the Commission’s litigation against the former executives.” In other words, this is the exact same kind of agreement that Judge Rakoff criticized the SEC for agreeing to with firms like Citigroup. There’s an added justification here, that Fannie and Freddie are being bailed out by taxpayers, and that “the costs” of a messy prosecution “may be imposed on U.S. taxpayers.” This is supposed to trump the rule of law.

It does not look like the six executives – former Fannie CEO Mudd, former Fannie Chief Risk Officer Enrico Dallavecchia, former Fannie VP Thomas Lund, former Freddie CEO Syron and former Freddie VPs Patricia Cook and Donald Bisenius – are getting off the hook that easily. We’re not at the settlement stage with these individuals. From the SEC release:

The SEC is seeking financial penalties, disgorgement of ill-gotten gains with interest, permanent injunctive relief and officer and director bars against Mudd, Dallavecchia, Lund, Syron, Cook, and Bisenius. Both lawsuits allege that the former executives caused the federal mortgage firms to materially misstate their holdings of subprime mortgage loans in periodic and other filings with the Commission, public statements, investor calls, and media interviews. The suit involving the Fannie Mae executives also includes similar allegations regarding Alt-A mortgage loans. The suit against the former Fannie Mae executives alleges they made misleading statements — or aided and abetted others — between December 2006 and August 2008. The former Freddie Mac executives are alleged to have made misleading statements — or aided and abetted others – between March 2007 and August 2008.

The SEC’s complaint against the former Fannie Mae executives alleges that, when Fannie Mae began reporting its exposure to subprime loans in 2007, it broadly described the loans as those “made to borrowers with weaker credit histories,” and then reported — with the knowledge, support, and approval of Mudd, Dallavecchia, and Lund — less than one-tenth of its loans that met that description. Fannie Mae reported that its 2006 year-end Single Family exposure to subprime loans was just 0.2 percent, or approximately $4.8 billion, of its Single Family loan portfolio. Investors were not told that in calculating the Company’s reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by Fannie Mae towards borrowers with weaker credit histories, including more than $43 billion of Expanded Approval, or “EA” loans [...]

In the complaint against the former Freddie Mac executives, the SEC alleged that they and Freddie Mac led investors to believe that the firm used a broad definition of subprime loans and was disclosing all of its Single-Family subprime loan exposure. Syron and Cook reinforced the misleading perception when they each publicly proclaimed that the Single Family business had “basically no subprime exposure.” Unbeknown to investors, as of December 31, 2006, Freddie Mac’s Single Family business was exposed to approximately $141 billion of loans internally referred to as “subprime” or “subprime like,” accounting for 10 percent of the portfolio, and grew to approximately $244 billion, or 14 percent of the portfolio, as of June 30, 2008.

The one thing I will say is this: note the timeline. We’re talking about Fannie and Freddie reporting and ramping up their subprime business in 2006 and 2007. This is after the bubble had already been built, and in fact it’s close to the peak. Fannie and Freddie did not create the market, they followed it. But these allegations show that they used the same misleading techniques with investors that the big boys did. The difference? These execs got busted for their conduct, and the heads of the big banks, to date, have not.