Freddie Mac wins dismissal of shareholder lawsuit

Reuters News
Posted: Sep 26, 2012 9:08 PM
Freddie Mac wins dismissal of shareholder lawsuit

By Jonathan Stempel

(Reuters) - A federal judge has again dismissed a lawsuit accusing Freddie Mac of misleading shareholders by understating its subprime mortgage exposure and overstating its capital strength ahead of the 2008 financial crisis.

U.S. District Judge John Keenan in Manhattan said the allegations made in an amended lawsuit failed to show that Freddie Mac officials, including former Chief Executive Richard Syron, intended to mislead shareholders, or withheld significant information from them.

He also said Freddie Mac had made a "bevy of truthful disclosures" about its credit and risk exposures during the period covered by the lawsuit, including over loans it guaranteed and its activities in nontraditional markets.

"It defies logic to conclude that executives who are seeking to perpetrate fraudulent information upon the market would make such fulsome disclosures," Keenan wrote.

Shareholders led by the Illinois-based Central States, Southeast and Southwest Areas Pension Fund had accused Freddie Mac of hiding its risks after revealing a $2 billion quarterly loss on November 20, 2007.

The lawsuit covers losses by investors in Freddie Mac common and preferred shares from that date until September 7, 2008, when U.S. regulators seized Freddie Mac and larger rival Fannie Mae and put them in a conservatorship under the Federal Housing Finance Agency.

Lawyers for the plaintiffs did not immediately respond to requests for comment.

Keenan had in March 2011 dismissed an earlier version of the lawsuit, which was first filed in August 2008, but given the plaintiffs a chance to amend their complaint. He refused on Wednesday to give them another chance.

The shareholder lawsuit is separate from a civil fraud lawsuit that the U.S. Securities and Exchange Commission has been pursuing against Syron and other former Freddie Mac officials. Defendants in that case have denied wrongdoing.

The case, whose title has a different named plaintiff, is Kuriakose v. Federal Home Loan Mortgage Corp et al, U.S. District Court, Southern District of New York, No. 08-07281.

(Reporting By Jonathan Stempel in New York; Editing by Chris Gallagher)