Freddie Mac 2014 Annual Report Download - page 239

234 Freddie Mac
range of possible loss in the event of an adverse judgment in the foregoing matter due to the following factors, among others:
the inherent uncertainty of the appellate process; the inherent uncertainty of pre-trial litigation in the event the case is ultimately
remanded to the District Court in whole or in part; and the fact that the District Court has not yet ruled upon motions for class
certification or summary judgment. In particular, absent resolution of the appellate process, the certification of a class, the
identification of a class period, and the identification of the alleged statement or statements that survive dispositive motions, we
cannot reasonably estimate any possible loss or range of possible loss.
Related Third Party Litigation
On December 16, 2011, the SEC announced that it had charged three former executives of Freddie Mac with securities
laws violations. These executives are former Chairman of the Board and Chief Executive Officer Richard F. Syron, former
Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the single-
family guarantee business Donald J. Bisenius.
On July 6, 2011, a lawsuit styled Liberty Mutual Insurance Company, Peerless Insurance Company, Employers
Insurance Company of Wausau, Safeco Corporation and Liberty Life Assurance Company of Boston vs. Goldman, Sachs & Co.
was filed in the U.S. District Court for Massachusetts. The case was subsequently transferred to the U.S. District Court for the
Southern District of New York. The defendants in the case were underwriters of the company’s November 2007 public offering
of preferred stock. The plaintiffs generally alleged that the underwriters made materially misleading statements and omissions
in connection with the offering. The case was voluntarily dismissed, with prejudice, on December 8, 2014. Freddie Mac was
not named as a defendant in the lawsuit.
Litigation Related to the Taylor, Bean & Whitaker (TBW) Bankruptcy
On August 24, 2009, TBW, which had been one of our single-family seller/servicers, filed for bankruptcy in the U.S.
Bankruptcy Court for the Middle District of Florida. We entered into a settlement with TBW and the TBW creditors' committee
regarding the TBW bankruptcy in 2011. However, we continue to be involved in litigation with other parties relating to the
TBW bankruptcy, as described below.
On or about May 14, 2010, certain underwriters at Lloyds, London and London Market Insurance Companies brought an
adversary proceeding in the U.S. Bankruptcy Court for the Middle District of Florida against TBW, Freddie Mac and other
parties seeking a declaration rescinding $90 million of mortgage bankers bonds providing fidelity and errors and omissions
insurance coverage. Several excess insurers on the bonds thereafter filed similar claims in that action. Freddie Mac has filed a
proof of loss under the bonds. The underwriters moved for partial summary judgment against Freddie Mac in April 2013. The
Court denied this motion on March 27, 2014, and the underwriters subsequently appealed the denial of the motion to the U.S.
District Court. Numerous additional motions for summary judgment have been filed by the parties, including by Freddie Mac.
These motions are pending. Discovery is proceeding. At present, it is not possible for us to predict the probable outcome of this
lawsuit.
On December 29, 2014, Freddie Mac filed an action in the U.S. District Court for the Southern District of New York
against certain underwriters at Lloyds, London and several other insurance carriers seeking coverage for $111 million in losses
under Freddie Mac’s primary and excess financial institution bonds. The losses resulted from fraud perpetrated by senior
officers and employees of TBW. At present, it is not possible for us to predict the probable outcome of this lawsuit.
On September 15, 2014, Freddie Mac filed a lawsuit in the Circuit Court of the 11th Judicial Circuit in Miami-Dade
County, Florida against Deloitte & Touche LLP (Deloitte) for negligent misrepresentation / false information negligently
supplied for the guidance of others. The complaint alleges, among other items, that Deloitte, as TBW’s independent auditor,
made and supplied false information during the course of its professional audits of TBW, as a result of which Freddie Mac
incurred damages in excess of $1.3 billion. Freddie Mac seeks damages and interest, as well as costs. On October 8, 2014,
Deloitte removed the case from state court to the U.S. District Court for the Southern District of Florida. Discovery is
proceeding. At present, it is not possible for us to predict the probable outcome of this lawsuit.
IRS Litigation
In 2010 and 2011, we received Statutory Notices from the IRS assessing a total of $3.0 billion of additional income taxes
and penalties for the 1998 to 2007 tax years. We filed a petition with the U.S. Tax Court on October 22, 2010 in response to the
Statutory Notices for the 1998 to 2005 tax years and, in 2012, paid the tax assessed in the Statutory Notices for the years 2006
and 2007 of $36 million. In the fourth quarter of 2012 we reached an agreement in principle with the IRS for all years,
including 2006 and 2007, to favorably resolve the matters in dispute and reduced the previously unrecognized tax benefits to
zero. We are currently working with the IRS to finalize the stipulation of settled issues and closing agreement for the years
1998 through 2010 related to our tax accounting method for certain hedging transactions, and expect that a final decision can be
entered within the next 12 months.
LIBOR Lawsuit
On March 14, 2013, Freddie Mac filed a lawsuit in the U.S. District Court for the Eastern District of Virginia against the
British Bankers Association and the 16 U.S. Dollar LIBOR panel banks and a number of their affiliates. The case was
subsequently transferred to the U.S. District Court for the Southern District of New York. The complaint alleges, among other
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