Trouble at Freddie Mac is likely to have serious implications for the mutual fund industry, reports. Institutions, primarily mutual funds, own 88% of the government-sponsored mortgage-finance giant.

Fidelity Investments owns nearly 8% of the stock, Putnam owns 7%, Alliance Capital 4.7%, Barclay’s Global Investors 4.6% and Pacific Financial Research 2.9%.

After Freddic Mac President David Glenn didn’t cooperate with a review of the company’s accounting practices late last week, the board fired him and pressured the chief executive officer and chief financial officer to leave.

The Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight are going to investigate Freddie Mac to see if it deferred income to improve performance results in various quarters, The Wall Street Journal reports. In addition, Federal Reserve Board Chairman Alan Greenspan has expressed concern over Freddie Mac’s derivative exposure.

Meanwhile, Freddie Mac said it would restate three years’ worth of its financials and that these restatements would probably boost its capital and earnings. Accounting practices, particularly how it classified hedges and assets, became a question at the organization earlier this year when it replaced Arthur Andersen with PricewaterhouseCoopers. After PwC reviewed its books, Freddie Mac said it would restate its earnings for 2000, 2001 and 2002.

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