What Haunted Freddie's CFO?
Did a federal investigation into Freddie Mac's accounting lead to the suicide of CFO David Kellermann? A drop in net worth? Charlie Gasparino probes Wall Street's latest tragedy.
We still don’t know why David Kellermann, the acting CFO of Freddie Mac, killed himself, and we may never. The act itself is grounded in irrationality, so it often defies rational explanations. We know from interviews yesterday with his colleagues at the troubled mortgage giant that Kellermann was a generally happy man, though he seemed “stressed out” recently while at work, according to The Wall Street Journal. Still, being stressed out generally isn’t a reason to take one’s life or everyone on Wall Street and at Freddie Mac would be cutting his or her wrists given the length and severity of the financial crisis that seems to have no end.
Kellermann took some heat when Freddie disclosed he was one of the handful of executives to receive a bonus amid the public outcry of bonus money.
But we do know something about Kellermann, and his job, which may provide some clues as to the breaking point for why he chose to hang himself in his suburban Washington, D.C. home. He clearly had a job that put him in the middle of all the problems facing Freddie—from allegations that the government agency created the mortgage bubble to, most recently, Freddie’s own disclosure that it is the subject of a Justice Department investigation into its accounting.
This is not to suggest Kellermann, a 16-year veteran of Freddie Mac, killed himself rather than face further scrutiny over his role in agency’s implosion and alleged accounting shenanigans. A spokesman for Freddie Mac said yesterday, "We know of no connection between this terrible personal tragedy and the ongoing regulatory inquiries discussed in our recent SEC filing.”
OK, but consider the following explanation supplied to me by Josh Rosner, an analyst for the firm Graham Fisher. Rosner is one of two people—Nouriel Roubini being the other—who accurately predicted the devastating effects of the mortgage bubble bursting.
In his analysis, Rosner was highly critical of Freddie Mac, and its sister agency Fannie Mae, the so-called government-sponsored enterprises, or GSEs, that were created by acts of Congress to promote homeownership. The GSEs were “quasi” governmental agencies— the government placed implicit guarantees on Fannie and Freddie’s financings—but they were also public companies, meaning they had shareholders who benefitted from their activites.
With that federal backup, Fannie and Freddie became enablers of the mortgage bubble that has resulted in record defaults and foreclosures. And when the housing market imploded, both agencies needed a massive federal bailout.
Rosner notes that Kellermann was named CFO only last year, after the government bailout of Freddie. Before that, he was Freddie’s controller at a time when analysts like Rosner were getting suspicious of Freddie’s accounting. Rosner, for instance, points to an interesting disclosure buried in the appendix of Freddie’s second-quarter 2008 earnings announcement, which stated that “balance sheet misclassifications and potential income statement adjustments” could occur in the future.
So what did Kellermann have to do with this? Nothing as far as I know. And there is no information to suggest that Kellermann is the target of any investigation or knew of irregularities if they occurred. Something else to consider: Freddie was a public company and many of its top officials, Kellermann included, hold shares that are now in penny-stock territory.
Despite that tremendous loss of net worth, Kellermann took some heat when Freddie disclosed he was one of the handful of executives to receive a bonus amid the public outcry of bonus money going to companies that have received federal bailout money.
All in all, these were very difficult days for David Kellermann. As Rosner put it: “Sadly, this poor man saw no way out of whatever haunted him and for that I feel.”
Charles Gasparino is CNBC's On-Air Editor and appears as a daily member of CNBC's ensemble. He is a columnist for the Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His forthcoming book about the financial crisis, The Sellout, is scheduled to be published later in 2009.