November 7, 2008— -- President-elect Barack Obama's newly appointed chief of staff, Rahm Emanuel, served on the board of directors of the federal mortgage firm Freddie Mac at a time when scandal was brewing at the troubled agency and the board failed to spot "red flags," according to government reports reviewed by ABCNews.com.
According to a complaint later filed by the Securities and Exchange Commission, Freddie Mac, known formally as the Federal Home Loan Mortgage Corporation, misreported profits by billions of dollars in order to deceive investors between the years 2000 and 2002.
Emanuel was not named in the SEC complaint (click here to read) but the entire board was later accused by the Office of Federal Housing Enterprise Oversight (OFHEO) (click here to read) of having "failed in its duty to follow up on matters brought to its attention."
In a statement to ABCNews.com, a spokesperson said Emanuel served on the board for "13 months-a relatively short period of time."
The spokesperson said that while on the board, Emanuel "believed that Freddie Mac needed to address concerns raised by Congressional critics."
Freddie Mac agreed to pay a $50 million penalty in 2007 to settle the SEC complaint and four top executives of the Federal Home Loan Mortgage Corporation were charged with negligent conduct and, like the company, agreed to settle the case without admitting or denying the allegations.
The actions by Freddie Mac are cited by some economists as the beginning of the country's economic meltdown.
The federal government this year was forced to take over Freddie Mac and a sister federal mortgage agency, Fannie Mae, pledging at least $200 billion in public funds.
Freddie Mac records have been subpoenaed by the Justice Department as part of its investigation of the suspect accounting procedures.
Emanuel was named to the Freddie Mac board by President Bill Clinton in 2000 and resigned his position when he ran for Congress in May, 2001.