Freddie Mac Wins Dismissal of Securities Fraud Lawsuit

Freddie Mac won’t have to face a
lawsuit filed by investors accusing it of misrepresenting the
state of its finances in 2007 and 2008, a federal judge ruled.

The investors failed to supply enough evidence that the
McLean, Virginia-based mortgage-finance company and some of its
senior managers intended to defraud them, U.S. District Judge
John F. Keenan said in a ruling filed yesterday in Manhattan
federal court.

The judge rejected contentions by the plaintiffs including
the Central States, Southeast and Southwest Areas Pension Fund
and the National Elevator Industry Pension Plan that Freddie
Mac (FMCC)
’s disclosures were misleading. The information Freddie Mac
provided was detailed, not opaque, the judge said.

“It defies logic to conclude that executives who are
seeking to perpetrate fraudulent information upon the market
would make such fulsome disclosures,” Keenan said in his
opinion. He dismissed the case with prejudice, meaning the
plaintiffs are barred from filing again.

Freddie Mac and its fellow housing-finance entity Fannie
Mae
were placed under U.S. conservatorship in September 2008
following financial losses and have since received more than
$187 billion in taxpayer support, according to the Federal
Housing Finance Agency
.

FHFA Memo

In the most recent version of their complaint, the
plaintiffs alleged that a memo from the FHFA revealed that
Freddie Mac was in financial trouble at the time of the alleged
misstatements. The judge found the memo insufficient to bolster
the plaintiffs’ case.

“The court will not intervene in a business and accounting
judgment simply because the FHFA accountants reached different
conclusions than Freddie Mac accountants,” he said.

A lawyer for the plaintiffs, Samuel H. Rudman, didn’t
immediately return a call seeking comment on the ruling.

The case is Kuriakose v. Federal Home Loan Mortgage Corp.,
08-cv-7281, U.S. District Court, Southern District of New York
(Manhattan).

To contact the reporter on this story:
Christie Smythe in New York at
csmythe1@bloomberg.net

To contact the editor responsible for this story:
Michael Hytha at mhytha@bloomberg.net


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