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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