Freddie Mac 2009 Annual Report Download - page 283

By letter dated June 5, 2009, Freddie Mac received formal notification of a putative class action lawsuit, Liberty Mutual
Insurance Company, Peerless Insurance Company, Employers Insurance Company of Wausau, Safeco Corporation, and
Liberty Assurance Company of Boston v. Goldman, Sachs & Co., filed on April 6, 2009 in the Superior Court for the
Commonwealth of Massachusetts, County of Suffolk and removed to the U.S. District Court for the District of
Massachusetts on April 24, 2009. The complaint alleges that Goldman, Sachs & Co. omitted and made untrue statements of
material facts, committed unfair or deceptive trade practices, common law fraud, and negligent misrepresentation, and
violated the laws of the Commonwealth of Massachusetts and the State of Washington while acting as the underwriter of
240,000,000 shares of Freddie Mac preferred stock (Series Z) issued December 4, 2007. On April 24, 2009, Goldman Sachs
joined with defendants in the Jacoby case discussed below and in the Mark and Kreysar cases in filing a motion to transfer
the Liberty Mutual and Jacoby cases to the judge hearing the Mark and Kreysar cases. Freddie Mac is not named as a
defendant in this lawsuit, but the underwriters gave notice to Freddie Mac of their intention to seek full indemnity and
contribution under the Underwriting Agreement, including reimbursement of fees and disbursements of their legal counsel.
The Liberty Mutual case was transferred to the U.S. District Court for the Southern District of New York on August 11,
2009, and voluntarily dismissed by the plaintiffs without prejudice on August 17, 2009.
Related Third Party Litigation. On December 15, 2008, a plaintiff filed a putative class action lawsuit in the
U.S. District Court for the Southern District of New York against certain former Freddie Mac officers and others styled
Jacoby v. Syron, Cook, Piszel, Banc of America Securities LLC, JP Morgan Chase & Co., and FTN Financial Markets. The
complaint, as amended on December 17, 2008, contends that the defendants made material false and misleading statements
in connection with Freddie Mac’s September 2007 offering of non-cumulative, non-convertible, perpetual fixed-rate preferred
stock, and that such statements “grossly overstated Freddie Mac’s capitalization” and “failed to disclose Freddie Mac’s
exposure to mortgage-related losses, poor underwriting standards and risk management procedures.” The complaint further
alleges that Syron, Cook and Piszel made additional false statements following the offering. Freddie Mac is not named as a
defendant in this lawsuit.
On January 29, 2009, a plaintiff filed a putative class action lawsuit in the U.S. District Court for the Southern District
of New York styled Kreysar v. Syron, et al. As noted above, on April 30, 2009, the Court consolidated the Mark case with
the Kreysar case, and the plaintiffs filed a consolidated class action complaint on July 2, 2009. The consolidated complaint
alleges that former Freddie Mac officers Syron, Piszel, and Cook, certain underwriters and Freddie Mac’s auditor,
PricewaterhouseCoopers LLP, violated federal securities laws by making material false and misleading statements in
connection with an offering by Freddie Mac of $6 billion of 8.375% Fixed to Floating Rate Non-Cumulative Perpetual
Preferred Stock Series Z that commenced on November 29, 2007. The complaint further alleges that certain defendants and
others made additional false statements following the offering. The complaint names as defendants Syron, Piszel, Cook,
Goldman, Sachs & Co., JPMorgan Chase & Co., Banc of America Securities LLC, Citigroup Global Markets Inc., Credit
Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley & Co. Incorporated, UBS Securities LLC and
PricewaterhouseCoopers LLP. Freddie Mac is not named as a defendant in this lawsuit. As discussed above, the Court
dismissed the case with leave to file an amended complaint on or before March 15, 2010.
Lehman Bankruptcy. On September 15, 2008, Lehman filed a chapter 11 bankruptcy petition in the Bankruptcy
Court for the Southern District of New York. Thereafter, many of Lehman’s U.S. subsidiaries and affiliates also filed
bankruptcy petitions (collectively, the “Lehman Entities”). Freddie Mac had numerous relationships with the Lehman Entities
which give rise to several claims. On September 22, 2009, Freddie Mac filed proofs of claim in the Lehman bankruptcies
aggregating approximately $2.1 billion.
Taylor, Bean & Whitaker Bankruptcy. On August 24, 2009, Taylor, Bean & Whitaker Mortgage Corp., or TBW,
filed for bankruptcy. Prior to that date, Freddie Mac had terminated TBW’s status as a seller/servicer of loans. Our current
estimate of potential exposure to TBW at December 31, 2009 for loan repurchase obligations, excluding the estimated fair
value of servicing rights, was approximately $700 million. We anticipate pursuing various claims against TBW. In addition
to this amount, Freddie Mac filed a proof of claim aggregating approximately $595 million against Colonial Bank. The proof
of claim relates to monies that remain, or should remain, on deposit with Colonial Bank, or with the FDIC as its receiver,
which are attributable to mortgage loans owned or guaranteed by us and previously serviced by TBW.
We continue to evaluate our other potential exposures and are working with the debtor in possession, the FDIC and
other creditors to quantify these exposures. At this time, we are unable to estimate our total potential exposure related to
TBW’s bankruptcy; however, the amount of additional losses related to such exposures could be significant.
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