Freddie Mac 2010 Annual Report Download - page 285

inquiry to determine whether there has been any violation of federal securities laws, and directing the company to preserve
documents. On October 21, 2008, the SEC issued to the company a request for documents. The SEC staff has also conducted
interviews of company employees. Beginning January 23, 2009, the SEC issued subpoenas to Freddie Mac and certain of its
employees pursuant to a formal order of investigation. Freddie Mac is cooperating fully in these matters.
Freddie Mac has been informed by Donald J. Bisenius, Executive Vice President — Single Family Credit Guarantee,
that on February 10, 2011, he received a “Wells Notice” from the SEC staff in connection with the investigation. The Wells
Notice indicates that the staff is considering recommending that the SEC bring civil enforcement action against Mr. Bisenius
for possible violations of the federal securities laws and related rules that are alleged to have occurred in 2007 and 2008.
Under the SEC’s procedures, a recipient of a Wells Notice has an opportunity to respond in the form of a written
submission that seeks to persuade the SEC staff that no action should be commenced. Mr. Bisenius has informed the
company that he intends to make such a submission.
Related Third Party Litigation and Indemnification Requests
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, but the underwriters previously gave notice to Freddie Mac of their intention to seek full indemnity and contribution
under the Underwriting Agreement in this case, including reimbursement of fees and disbursements of their legal counsel.
The case is currently dormant and we believe plaintiff may have abandoned it.
By letter dated October 17, 2008, Freddie Mac received formal notification of a putative class action securities lawsuit,
Mark v. Goldman, Sachs & Co., J.P. Morgan Chase & Co., and Citigroup Global Markets Inc., filed on September 23, 2008,
in the U.S. District Court for the Southern District of New York, regarding the company’s November 29, 2007 public
offering of 8.375% Fixed to Floating Rate Non-Cumulative Perpetual Preferred Stock.
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. 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 three
former Freddie Mac officers, certain underwriters and Freddie Mac’s auditor 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 Securities Inc., 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.
The defendants filed a motion to dismiss the consolidated class action complaint on September 30, 2009. On
January 14, 2010, the Court granted the defendants’ motion to dismiss the consolidated action with leave to file an amended
complaint on or before March 15, 2010. On March 15, 2010, plaintiffs filed their amended consolidated complaint against
these same defendants. The defendants moved to dismiss the amended consolidated complaint on April 28, 2010. On July 29,
2010, the Court granted the defendants’ motion to dismiss, without prejudice, and allowed the plaintiffs leave to replead. On
August 16, 2010, the plaintiffs filed their second amended consolidated complaint against these same defendants. The
defendants moved to dismiss the second amended consolidated complaint on September 16, 2010. On October 22, 2010, the
Court granted the defendants’ motion to dismiss, without prejudice, again allowing the plaintiffs leave to replead. On
November 14, 2010, the plaintiffs filed a third amended consolidated complaint against PricewaterhouseCoopers LLP, Syron
and Piszel, omitting the underwriter defendants and Cook. On January 11, 2011, the Court granted the remaining defendants’
motion to dismiss the complaint with respect to PricewaterhouseCoopers LLP, but denied the motion with respect to Syron
and Piszel. Freddie Mac is not named as a defendant in the consolidated lawsuit, but the underwriters previously gave notice
to Freddie Mac of their intention to seek full indemnity and contribution under the Underwriting Agreement in this case,
including reimbursement of fees and disbursements of their legal counsel. 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.
282 Freddie Mac