Is there a Santa Claus rally under way? Look no further than Fannie Mae (NYSE:FNM). The stock has traded up as much as 5% on news that the CEO and CFO have left the company and the auditors have been dismissed. Ah, investment euphoria at its best!

It is not known what presents the Securities and Exchange Commission investigation and a Justice Department criminal investigation will ultimately leave. What is known is that the Office of Federal Housing Enterprise Oversight (OFHEO) findings regarding "hedge accounting" could prune $9 billion from earnings and cause a shortfall in required regulatory capital.

How big is $9 billion? It is $1.5 billion more than Fannie Mae reported as net income for the last 12 months -- and those reported earnings are going to be lowered when it restates its results from 2001 forward.

Today's Santa revelers may be overlooking tomorrow's big headache -- regulatory capital. If the stock keeps bubbling like champagne, it's possible the company will issues shares and dilute future earnings per share. Yes, Fannie Mae could cut the dividend and pillage the $2 billion in capital returned to shareholders annually, but that would not address near-term capital requirements.

This analyst realizes the opinions being rendered here are not in line with Wall Street. Fannie's news has been circulating long enough for opinion to change. But the average recommendation is still buy. Maybe it is the low price-to-earnings ratio -- which will rise with restated (i.e., lower) earnings. Maybe the investors see rising interest rates working in the company's favor. Or maybe they noticed a five-year stock price chart and, because the stock has traded sideways for years, think it is ready to hit the fast track in the new sneakers Santa is bringing this naughty company.

Santa is running wild on Wall Street. Investors should read the gift Motley Fool writer extraordinaire Bill Mann left for them last week: "What's clear is that the folks running Fannie have taken the faith of shareholders, the public, and even that of taxpayers, and stomped the life out of it. I can't imagine wanting to own such an equity until a little more institutional control is restored."

Amen to that. And to all a good night.

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Fool contributor W.D. Crotty, as you might guess, does not own stock in Fannie Mae.