Freddie Mac 2009 Annual Report Download - page 280

Table 13.3 — AOCI, Net of Taxes, Related to Cash Flow Hedge Relationships
2009 2008 2007
Year Ended December 31,
(in millions)
Beginning balance
(1)
................................................................ $(3,678) $(4,059) $(5,032)
Cumulative effect of change in accounting principle
(2)
....................................... — 4 —
Net change in fair value related to cash flow hedging activities, net of tax
(3)
........................ — (522) (30)
Net reclassifications of losses to earnings, net of tax
(4)
....................................... 773 899 1,003
Ending balance
(1)
.................................................................. $(2,905) $(3,678) $(4,059)
(1) Represents the effective portion of the fair value of open derivative contracts (i.e., net unrealized gains and losses) and net deferred gains and losses on
closed (i.e., terminated or redesignated) cash flow hedges.
(2) Represents adjustment to initially apply the accounting standards on the fair value option for financial assets and financial liabilities. Net of tax benefit
of $— million for the year ended December 31, 2008.
(3) Net of tax benefit of $— million, $25 million, and $16 million for years ended December 31, 2009, 2008 and 2007, respectively.
(4) Net of tax benefit of $392 million, $476 million and $540 million for years ended December 31, 2009, 2008 and 2007, respectively.
Table 13.4 summarizes hedge ineffectiveness recognized related to our hedge accounting categories.
Table 13.4 — Hedge Accounting Categories Information
2009 2008 2007
Year Ended
December 31,
(in millions)
Fair value hedges
Hedge ineffectiveness recognized in other income — pre-tax
(1)
.......................................... $— $— $—
Cash flow hedges
Hedge ineffectiveness recognized in other income — pre-tax
(1)
.......................................... $— $(16) $—
(1) No amounts have been excluded from the assessment of effectiveness.
NOTE 14: LEGAL CONTINGENCIES
We are involved as a party to a variety of legal and regulatory proceedings arising from time to time in the ordinary
course of business including, among other things, contractual disputes, personal injury claims, employment-related litigation
and other legal proceedings incidental to our business. We are frequently involved, directly or indirectly, in litigation
involving mortgage foreclosures. From time to time, we are also involved in proceedings arising from our termination of a
seller/servicer’s eligibility to sell mortgages to, and/or service mortgages for, us. In these cases, the former seller/servicer
sometimes seeks damages against us for wrongful termination under a variety of legal theories. In addition, we are
sometimes sued in connection with the origination or servicing of mortgages. These suits typically involve claims alleging
wrongful actions of seller/servicers. Our contracts with our seller/servicers generally provide for indemnification against
liability arising from their wrongful actions with respect to mortgages sold to Freddie Mac.
Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. In
accordance with the accounting standards for contingencies, we reserve for litigation claims and assessments asserted or
threatened against us when a loss is probable and the amount of the loss can be reasonably estimated.
Putative Securities Class Action Lawsuits. Ohio Public Employees Retirement System (“OPERS”) vs. Freddie Mac,
Syron, et al. This putative securities class action lawsuit was filed against Freddie Mac and certain former officers on
January 18, 2008 in the U.S. District Court for the Northern District of Ohio purportedly on behalf of a class of purchasers
of Freddie Mac stock from August 1, 2006 through November 20, 2007. The plaintiff alleges that the defendants violated
federal securities laws by making “false and misleading statements concerning our business, risk management and the
procedures we put into place to protect the company from problems in the mortgage industry.” On April 10, 2008, the court
appointed OPERS as lead plaintiff and approved its choice of counsel. On September 2, 2008, defendants filed a motion to
dismiss plaintiff’s amended complaint, which purportedly asserted claims on behalf of a class of purchasers of Freddie Mac
stock between August 1, 2006 and November 20, 2007. On November 7, 2008, the plaintiff filed a second amended
complaint, which removed certain allegations against Richard Syron, Anthony Piszel, and Eugene McQuade, thereby leaving
insider-trading allegations against only Patricia Cook. The second amended complaint also extends the damages period, but
not the class period. The complaint seeks unspecified damages and interest, and reasonable costs and expenses, including
attorney and expert fees. On November 19, 2008, the Court granted FHFA’s motion to intervene in its capacity as
Conservator. On April 6, 2009, defendants filed a motion to dismiss the second amended complaint, which motion remains
pending. At present, it is not possible for us to predict the probable outcome of the lawsuit or any potential impact on our
business, financial condition, or results of operations.
Kuriakose vs. Freddie Mac, Syron, Piszel and Cook. Another putative class action lawsuit was filed against Freddie
Mac and certain former officers on August 15, 2008 in the U.S. District Court for the Southern District of New York for
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