Shareholders of Freddie Mac lost their bid to sue former directors and officers of the government-owned mortgage finance company when the Federal Housing Finance Agency stepped in to lead the case in Virginia.
A federal appeals court in Richmond, Virginia, today upheld a ruling by U.S. District Judge Leonie Brinkema, who found that the 2008 law creating the FHFA as Freddie Mac’s conservator gave the agency the authority to substitute itself as the plaintiff.
“The district court, interpreting the act, concluded that ‘the plain meaning of the statute is that all rights previously held by Freddie Mac’s stockholders, including the right to sue derivatively, now belong exclusively to the [Agency],’” the court said.
The Louisiana Municipal Police Employees Retirement System along with other shareholders alleged former Freddie Mac officials wasted company assets and mismanaged the company resulting in “significant losses.”
Named defendants included Richard Syron, former chief executive officer of McLean, Virginia-based Freddie Mac, and Anthony Piszel, Freddie Mac’s chief financial officer from November 2006 to September 2008.
Brinkema dismissed the case on April 20 at the request of FHFA, which in court papers said an investigation “found no evidence sufficient to demonstrate any of these defendants engaged in willful misconduct with respect to the allegations in the derivative complaints.”
‘Adopted the Reasoning’
Matthew Miller, a Washington lawyer who represents the shareholders, said he is disappointed with the ruling and that the appeals court “essentially adopted the reasoning of the district court.” Miller said his clients are still considering whether to file additional appeals.
Corinne Russell, an FHFA spokeswoman, declined to comment.
Freddie Mac and its larger rival, Washington-based Fannie Mae, own or guarantee more than half of U.S. home loans. The federal government took control of the companies in September 2008 amid losses stemming from the collapse of the mortgage market. Since then, they have drawn $153 billion in federal aid to remain solvent amid soaring foreclosures and lagging home prices.
The case is Louisiana Municipal Police Employees Retirement System v. Federal Housing Finance Agency, 09-01973, U.S. Court of Appeals for the Fourth Circuit (Richmond).