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Could Dan Mudd Resign as Fortress CEO?

Friday, 16 Dec 2011 | 4:05 PM ET
The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.
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The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.

Inside Fortress Investor Group, many people are speculating that Daniel H. Mudd, the chief executive, may step aside soon.

Mudd was sued Friday by the Securities and Exchange Commission for securities fraud relating to disclosures of high-risk mortgage exposure at Fannie Mae during the period when he was that company’s chief executive. Two other executives at Fannie Mae and three at Freddie Mac were also sued Friday.

Mudd is strenuously denying the SEC’s allegations.

"Every piece of material data about loans held by Fannie Mae was known to the United States government and to the investing public," Mudd said. "The SEC is wrong, and I look forward to a court where fairness and reason — not politics — is the standard for justice."

Inside of Fortress , however, there is concern about the ability of Mudd to juggle the responsibilities of chief executive with mounting a defense to the case against him.

“At the very least, this is a huge distraction,” one person at Fortress said.

Mudd received a Wells Notice in March indicating the SEC was investigating his role at Fannie Mae. According to a person familiar with the matter, cooperating with the SEC's investigation up to this point has not taken up very much of Mudd's time at all. It hasn't been a distraction from his duties at Fortress in the slightest, the person said.

"He's spent maybe two days on this thing," the person said.

Others cited investors in Fortress — which is publicly listed — becoming concerned that the company is run by a man charged with fraud by the government.

“Can you really run a trading and investment firm with a guy accused of fraud in the corner office?” a different Fortress employee asked.

There’s no legal requirement for Mudd to leave his position.

Fortress would not comment on the speculation.

“This morning, the SEC filed a civil complaint against Dan Mudd, related to matters associated with his previous employment at Fannie Mae. The complaint does not relate to Fortress, and this matter has not impacted our company or our business operations. We are undertaking a thorough review of the matters addressed in the complaint,” Fortress said in a statement.

One high-ranking person at Fortress said he understood that no decision had yet been made about whether Mudd would continue as CEO.

But discussions are underway.

Business Insider is reporting that an anonymous tipster has said Stu Bohart, Fortress's president of liquid markets managing director of strategy, will take on the CEO's duties. This is not exactly the most reliable sourcing. Even Business Insider reports that the story is just “plausible” rather than based on “solid knowledge.”

One person familiar with the matter described Bohart as a talented executive but called the notion that he has a lock on the CEO post “premature.”

“The universe is wide open if Mudd goes,” the person said.

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