Freddie Mac 2010 Annual Report Download - page 284

investments portfolio and guarantee business, and take market share away from its primary competitor, Fannie Mae.” Among
other things, plaintiff seeks an accounting, an order requiring that defendants remit all salary and compensation received
during the periods they allegedly breached their duties, and an award of pre-judgment and post-judgment interest, attorneys’
fees, expert fees and consulting fees, and other costs and expenses. On November 13, 2008, FHFA filed a motion to
substitute for the Esther Sadowsky Testamentary Trust. On February 26, 2009, Robert Bassman filed a motion with the
District Court to intervene or, in the alternative, to appear as amicus curiae. On May 6, 2009, the District Court granted
FHFA’s motion to substitute and denied Bassman’s motion to intervene. On June 4, 2009, the Esther Sadowsky Testamentary
Trust filed a notice of appeal of the May 6 order granting FHFA’s substitution motion. On September 17, 2009, Bassman
filed a notice of appeal of the May 6 order denying his motion to intervene or appear as amicus curiae. On March 10, 2010,
the U.S. Court of Appeals for the Second Circuit granted FHFA’s motion to dismiss the appeal of the Esther Sadowsky
Testamentary Trust and dismissed that appeal on April 12, 2010 due to lack of jurisdiction. On October 28, 2010, the District
Court granted FHFA’s motion to extend the stay through February 1, 2011. On February 1, 2011, FHFA filed a status report
with the District Court requesting that it extend the stay until March 2, 2011. The District Court granted this request on
February 2, 2011.
At present, it is not possible for us to predict the probable outcome of these lawsuits or any potential impact on our
business, financial condition or results of operations.
Energy Lien Litigation
On July 14, 2010, the State of California filed a lawsuit against Fannie Mae, Freddie Mac, FHFA, and others in the
U.S. District Court for the Northern District of California, alleging that Fannie Mae and Freddie Mac committed unfair
business practices in violation of California law by asserting that property liens arising from government-sponsored energy
initiatives such as California’s Property Assessed Clean Energy, or PACE program cannot take priority over a mortgage to be
sold to Fannie Mae or Freddie Mac. The lawsuit contends that the PACE programs create liens superior to such mortgages
and that, by affirming Fannie Mae and Freddie Mac’s positions, FHFA has violated the National Environmental Policy Act,
or NEPA, and the Administrative Procedure Act, or APA. The complaint seeks declaratory and injunctive relief, costs and
such other relief as the court deems proper.
Similar complaints have been filed by other parties. On July 26, 2010, the County of Sonoma filed a lawsuit against
Fannie Mae, Freddie Mac, FHFA, and others in the U.S. District Court for the Northern District of California, alleging
similar violations of California law, NEPA, and the APA. In a filing dated September 23, 2010, the County of Placer moved
to intervene in the Sonoma County lawsuit as a party plaintiff seeking to assert similar claims, which motion was granted on
November 1, 2010. On October 1, 2010, the City of Palm Desert filed a similar complaint against Fannie Mae, Freddie Mac,
and FHFA in the Northern District of California. On October 8, 2010, Leon County and the Leon County Energy
Improvement District filed a similar complaint against Fannie Mae, Freddie Mac, FHFA, and others in the Northern District
of Florida. On October 12, 2010, FHFA filed a motion before the Judicial Panel on Multi-District Litigation seeking an order
transferring these cases as well as a related case filed only against FHFA, for coordination or consolidation of pretrial
proceedings. This motion was denied on February 8, 2011. On October 14, 2010, the defendants filed a motion to dismiss
the lawsuits pending in the Northern District of California. Also on October 14, 2010, the County of Sonoma filed a motion
for preliminary injunction seeking to enjoin the defendants from giving any force or effect in Sonoma County to certain
directives by FHFA regarding energy retrofit loan programs and other related relief. On October 26, 2010, the Town of
Babylon filed a similar complaint against Fannie Mae, Freddie Mac, and FHFA, as well as the Office of the Comptroller of
the Currency, in the U.S. District Court for the Eastern District of New York.
The defendants have filed motions to dismiss the lawsuits brought in the Northern District of California and the
Northern District of Florida; responses to the other complaints are not yet required. On December 23, 2010, the Northern
District of California granted the parties’ joint stipulation dismissing as defendants the individual officers of Freddie Mac and
Fannie Mae from the State of California and County of Sonoma matters. On December 17, 2010, the judge handling the
cases in the Northern District of California requested a position statement from the United States, which was filed on
February 8, 2011.
At present, it is not possible for us to predict the probable outcome of these lawsuits or any potential impact on our
business, financial condition or results of operations.
Government Investigations and Inquiries
On September 26, 2008, Freddie Mac received a federal grand jury subpoena from the U.S. Attorney’s Office for the
Southern District of New York. The subpoena sought documents relating to accounting, disclosure, and corporate governance
matters for the period beginning January 1, 2007. Subsequently, we were informed that the subpoena was withdrawn, and
that an investigation is being conducted by the U.S. Attorney’s Office for the Eastern District of Virginia. On September 26,
2008, Freddie Mac received notice from the Staff of the Enforcement Division of the SEC that it is also conducting an
281 Freddie Mac