The case is one of the U.S. Securities and Exchange Commission's biggest actions against high-level financial industry executives, although the regulator did not specify a dollar amount for damages in the alleged fraud. Many lawmakers consider Fannie Mae and Freddie Mac at least partly responsible for the 2008 crisis, saying they encouraged lax lending to home buyers that led to a massive real estate bubble.

The SEC brought civil fraud charges on Friday against former Fannie Mae CEO Daniel Mudd, former Freddie Mac CEO Richard Syron and four other one-time executives.

Mudd, now chief executive of Fortress Investment Group, and Syron left the mortgage finance companies after they were taken over by the government in 2008 as mortgage losses spiraled. The two firms have been propped up by $169 billion in federal aid since they were seized.

The SEC is seeking to bar the defendants from serving as officers or directors of public companies, among other penalties.

Fortress, one of the few publicly traded hedge fund and private equity companies, said it would review "the matters addressed in the complaint" against Mudd, but noted that the lawsuit concerned his previous job at Fannie Mae.

An attorney for Syron said the SEC case was "without merit" and relied on a mistaken approach in examining the mortgage giant's disclosures. He said the firm had appropriately disclosed the amount of risk underlying its loans.

"Simply stated, there was no shortage of meaningful disclosures, all of which permitted the reader to assess the degree of risk in Freddie Mac's guaranteed portfolio. The SEC's theory and approach are fatally flawed," attorney Thomas Green said.

Other defendants include former Fannie Mae Chief Risk Officer Enrico Dallavecchia, who later became chief risk officer at PNC Financial Services. PNC spokesman Frederick Solomon said Dallavecchia stepped down from his PNC post on Friday and was on administrative leave.

Attorneys for Mudd and Dallavecchia did not immediately respond to requests for comment.

LIGHTNING RODS

Since Fannie Mae and Freddie Mac nearly went bust, the congressionally chartered firms have become political lightning rods.

Republicans point to them as the culprits behind the foreclosure and housing crisis, and Democrats and Republicans alike want to dismantle them, although they cannot agree how.

Republican presidential front-runner Newt Gingrich has been harshly criticized by some of his opponents for accepting up to $1.6 million as a consultant to Freddie Mac from 1999 until 2008. Gingrich says he was not a lobbyist but was paid for "strategic advice."

Both firms have recently drawn fire on Capitol Hill for extending multimillion-dollar pay packages to executives, and Republicans and Democrats largely agree that the mortgage giants eventually need to be shut down. Fannie Mae and Freddie Mac buy loans from lenders and repackage them as guaranteed securities for sale to investors.

"Today's news underscores how important it is that Congress work to end the ongoing taxpayer bailout of Fannie and Freddie," said Republican U.S. Congressman Scott Garrett of New Jersey. "Fannie Mae and Freddie Mac played a leading role in the 2008 financial collapse that wreaked havoc on the U.S. economy and, in domino effect, economies across the globe."

The SEC said on Friday that Fannie Mae and Freddie Mac will cooperate with the agency and have agreed to admit responsibility for the alleged misconduct, without acknowledging or denying liability. The firms have also entered into non-prosecution agreements with the agency, the SEC said.

Freddie Mac, in a statement, said it had reached an agreement with the SEC but did not comment on the charges against its former executives. Fannie Mae representative Andrew Wilson also declined comment on the charges, but said "we are pleased to bring the SEC inquiry to a close."

MORTGAGE RISKS

In lawsuits filed in U.S. District Court in Manhattan, the SEC said the six defendants made it appear that their companies had far less exposure to risky mortgages in their loan portfolios than in fact existed.

In one episode in 2006, the SEC said, Syron said on an earnings conference call that "we, as you know, weren't really involved in underwriting much of that business, any of that business, directly," referring to the subprime loan market.

That statement, the SEC said, was "materially false and misleading," because at around that time Freddie Mac's single-family credit guarantee portfolio contained $141 billion worth of subprime loans, 10 percent of its total.

The SEC also charged Thomas Lund, a former executive vice president at Fannie Mae. His lawyer, Michael Levy, said his client "did not mislead anyone."

Lawyers for the two other defendants, former Freddie Mac executives Patricia Cook and Donald Bisenius, did not immediately respond to requests for comment.

The SEC is asking the court to order the six defendants to pay back alleged illegal profits. The documents did not specify what amount the SEC would be seeking.

"The companies adopted very broad definitions of subprime, leaving reasonable investors to conclude that what was disclosed in their filings was the entirety of their subprime exposure," Robert Khuzami, director of the SEC's enforcement division, said at a news conference.

"Investors were robbed of the opportunity to make informed investor choices," he said.

The cases are SEC v. Daniel Mudd et al., No. 11-9202 and SEC v. Syron et. al No. 11-9201, U.S. District Court for the Southern District of New York.

(Additional reporting by Margaret Chadbourn in Washington and Svea Herbst-Bayliss in Boston; editing by Martha Graybow, Gerald E. McCormick, Gunna Dickson and John Wallace)

• A Permanent Economic Emergency