updated 8/19/2004 8:06:57 AM ET 2004-08-19T12:06:57

The staff of the Securities and Exchange Commission informed mortgage giant Freddie Mac on Wednesday that it will recommend that the commission bring civil charges against the company related to its accounting scandal last year.

The warning came in a formal "Wells Notice" to McLean, Va.-based Freddie Mac, indicating that the staff thinks the broader commission should sue the company for violating securities law.

The SEC launched a broad investigation into Freddie Mac's accounting practices last year after the company ousted its top three executives and widespread problems surfaced.

Freddie Mac confirmed that it had received the notice advising it that the staff is "considering a recommendation that the SEC initiate a civil injunctive action against the company for possible violations of securities laws."

The SEC told the company that it could also seek a fine as well as a "permanent injunction" against Freddie Mac.

"As previously disclosed, Freddie Mac has been cooperating with the SEC's investigation and will continue to do so as we evaluate the manner in which we will respond to the receipt of the Wells Notice," the company said in a three-paragraph statement.

Freddie Mac said the SEC specifically cited possible violations of the SEC's anti-fraud regulations, which prohibit "misstatements or misleading omissions of material facts, and fraudulent or manipulative acts and practices, in connection with the purchase or sale of securities," according to the SEC's web site.

The SEC staff also cited possible violations of insider trading rules, Freddie Mac said, as well as other possible breaches of securities laws.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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