US Federal Judge Dismisses Pension Lawsuit Against Freddie Mac

(April 1, 2011) — A US federal lawsuit brought against Freddie Mac by two pension funds — Southeast and Southwest Areas Pension Fund and National Elevator Industry Pension Plan — has been rejected.

Judge John Keenan claimed that the pensions failed to adequately prove that Freddie Mac, the taxpayer-backed mortgage finance giant rescued by the US government, offered misrepresentation or misstatements regarding its exposure to non-prime mortgage loans, the accuracy of financial reporting, and capital adequacy, Reuters reported. “These claims fail because plaintiffs have not plausibly alleged that these misrepresentations proximately caused them economic harm,” Keenan wrote in his ruling, obtained by the news agency.

The pensions asserted that Freddie Mac was not sufficiently transparent in its third-quarter 2007 disclosure of a $2 billion loss, which resulted in inflated share prices that eventually plummeted.

Following the financial crisis, pensions have been active players in suing financial giants, accusing them of concealing and minimizing losses to shareholders. Last month, US District Judge Paul Crotty named the Arkansas Teachers Retirement System, the West Virginia Investment Management Board, and the Plumbers and Pipefitters National Pension Group as co-lead plaintiffs in an investor lawsuit against Goldman Sachs Group. The pension schemes filed the suit in an effort to recover losses from the banking giant’s alleged misleading statements about Abacus, a credit derivative product based on mortgage-backed securities. Represented by the law firms Robbins Geller Rudman & Dowd LLP and Labaton Sucharow LLP, the funds reportedly suffered the most severe losses connected with the case of any of the proposed plaintiffs.

Similarly, in January, the State of Michigan sued Bank of America Corp.’s Countrywide Financial unit in a bid to recover $65 million for its public pension funds. “Protecting the hard-earned dollars of Michigan taxpayers from fraud is one of my top priorities,” said Attorney General Bill Schuette in a statement. In the complaint, the Attorney General’s office claimed that Countrywide had effectively become a subprime lender while telling investors that it continued to maintain stringent mortgage loan underwriting standards that differentiated it from its competitors and subprime lenders. While Countrywide assured the market that it should not be impacted by a downturn in the housing market, Countrywide’s stock price dropped about 90%, from over $35 per share to about $5 per share between March 12, 2004 and March 7, 2008.