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Fannie Mae says SEC has begun investigation

Fannie Mae, the biggest financer of U.S. home loans, said Tuesday that the Securities and Exchange Commission opened a formal investigation into its accounting. Its shares fell in trading after exchanges closed.

The probe follows a report by the government-chartered company's regulator last month that accused it of wrongly accounting for hedging transactions on its $895 billion mortgage portfolio, improperly using "cookie jar" reserves, and deferring expenses to meet executive bonuses. Fannie Mae, based in Washington, announced the SEC investigation in a regulatory filing. It didn't elaborate.

A formal SEC probe requires the vote of the agency's commissioners and gives the SEC's staff the authority to issue subpoenas for documents and witnesses. Fannie Mae chief executive officer Franklin Raines told Congress earlier this month the Washington-based company did nothing wrong.

"The issue is essentially in the SEC's court," said Robert Napoli, an analyst at Piper Jaffray & Co. in Chicago who rates Fannie Mae "outperform." "I don't know that it means anything other than the SEC is working to resolve" the dispute between the Office of Federal Housing Enterprise Oversight and the company, he said.

Fannie Mae in a statement said it "will continue to cooperate with the SEC's ongoing investigation." Janis Smith, a company spokeswoman, declined further comment. Matt Well, an SEC spokesman, declined to comment.

The announcement was made after the close of trading. The Washington Post reported the investigation on Oct. 15, citing people briefed on the case it didn't identify.

Shares of Fannie Mae declined about $2 to $65.79 in after-hours trading, after falling $1.04 on the New York Stock Exchange. They are down 10 percent since OFHEO made its findings public on Sept. 22.