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Former Fannie Mae (FNM) CEO Franklin Raines, along with former CFO Tim Howard and former controller Leanne Spencer, settled with its regulator, the Office of Federal Housing Enterprise Oversight, last Friday.

Recall that Fannie Mae famously abused its accounting for derivative transactions and fee recognition, and has taken years to bring its financials statements back up to the present. According to the OFHEO release, Raines will pay $24.7 million, comprised of:

"The proceeds from the sale of Fannie Mae stock, valued at $1.8 million to be donated to programs and initiatives to assist homeowners threatened with the loss of their homes or related initiatives to assist homeownership, as approved by OFHEO.

Payment of $2 million to the United States Government.

Surrender and relinquishment of claims related to stock options with a value of $15.6 million when they were issued.

Other benefits lost in association with the above estimated at $5.3 million."

It's easy to picture Mr. Raines standing in a corner, with his head hung in shame. In reality, he's probably doing a victory dance: originally, OFHEO had hoped to win $115 million from him. And the Washington Post paints a very different picture of the composition of that $24.7 million:

"The agreement includes stock options worth $15.6 million at the time they were issued; those options are currently under water. They entitled Raines to buy shares at prices of $77.10 and higher. Fannie Mae's shares are currently trading at about $29, so the options Raines is surrendering would not produce any benefit to him unless the share price rose dramatically, according to sources familiar with the settlement who spoke on the condition of anonymity because they did not want to be seen as criticizing the regulator.

OFHEO said Raines's settlement also includes the payment of $2 million to the federal government. That sum would be covered by a Fannie Mae insurance policy, the sources said.

The settlement also includes proceeds from the sale of stock worth $1.8 million, to be donated to programs aimed at assisting financially strapped homeowners. Those are shares Raines had been fighting in court to obtain from Fannie Mae."

Doesn't seem to carry quite the same sting, does it? Not only is the settlement vastly reduced from the original amount of damages sought, the party that Franklin injured - Fannie Mae and its shareholders - wind up picking up the tab for his malfeasance. The terms were similar for Howard.

Is this a great country or what? It's getting to be a weird country, that's for sure.

Source: Justice Hardly Reigns Over Fannie Mae's Raines