CORRECTED-Ex-Freddie execs lose bid to toss SEC lawsuit


Sat Mar 30, 2013 2:27pm EDT

(Corrects first paragraph to state that “two other one-time
executives lost their bid” rather than “three other,” and
corrects typo in third paragraph: “exposure” instead of
“exponsure”)

By Nate Raymond

NEW YORK, March 29 (Reuters) – Former Freddie Mac chief
executive Richard Syron and two other one-time executives lost
their bid to escape a U.S. regulator’s lawsuit accusing them of
misleading investors about the company’s exposure to risky
mortgage loans.

U.S. District Judge Richard Sullivan in Manhattan partially
granted but otherwise denied the defendants’ motion to dismiss
the case, one of the biggest enforcement actions brought against
executives spilling out of the financial crisis.

Sullivan in his Thursday ruling sided with the SEC, finding
the lawsuit’s allegations supported a plausible inference that
Syron and Patricia Cook, Freddie Mac’s former chief business
officer, misrepresented the company’s subprime exposure.

He also rejected the defendants’ contention even if Syron
and Cook verbally misrepresented Freddie’s exposure, investors
could have looked to detailed quantitative information to
calculate its subprime exposure.

“In this case, the Court cannot conclude that no reasonable
investor could have found the alleged misrepresentations and
omissions to be material in light of the quantitative
disclosures,” Sullivan wrote.

The judge also allowed SEC claims against Donald Bisenius, a
former executive vice president for Freddie’s single family
guarantee business.

Lawyers for Syron and Cook did not respond to requests for
comment. Daniel Beller, a lawyer for Bisenius, declined comment.
A spokesman for the SEC did not respond to a request for
comment.

Syron, Cook and Bisenius were hit with the SEC lawsuit in
December 2011, as the agency launched a similar lawsuit against
three ex-Fannie Mae executives, including former chief executive
Daniel Mudd.

U.S. District Judge Paul Crotty denied the Fannie
executives’ bids to dismiss the case against them August
2012.

In the Freddie Mac case, Syron and the other defendants also
argued they were exempt from liability under the Securities
Exchange Act of 1934 since Freddie, as a government-sponsored
corporation, was an independent U.S. establishment.

Sullivan rejected that argument, saying “had Congress in
1970 or at any time since then wished to designate Freddie Mac
as an independent establishment, it would have done so.”

The case is: Securities and Exchange Commission v. Syron,
U.S. District Court, Southern District of New York, No.
11-09201.

(Reporting by Nate Raymond; Editing by Leslie Gevirtz)


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