Freddie Mac 2015 Annual Report Download - page 324

Financial Statements Notes to the Consolidated Financial Statements | Note 15
Freddie Mac 2015 Form 10-K 322
LITIGATION RELATED TO THE TAYLOR, BEAN & WHITAKER (TBW)
BANKRUPTCY
In August 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 in March 2014, and the underwriters subsequently appealed the
denial of the motion to the U.S. District Court. Numerous additional motions for summary judgment filed
by the parties, including by Freddie Mac, are pending. In February 2015, the Court granted summary
judgment against TBW on its claims. Freddie Mac has moved for a clarification that the Court’s judgment
does not apply to Freddie Mac’s separate claims against Lloyds. In September 2015, TBW advised the
Court that a settlement had been reached. Documentation of the settlement agreement in a form
satisfactory to the parties, including Freddie Mac, is proceeding, and must be submitted to the Court for
approval.
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. In October 2014, Deloitte removed the
case from state court to the U.S. District Court for the Southern District of Florida. In January 2016, the
parties entered into a settlement on mutually agreeable terms and, as a result, filed a stipulation of
dismissal of the action on January 20, 2016. We do not expect the settlement to have a material effect on
our financial results for 2016.
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 things, that the defendants fraudulently and
collusively depressed LIBOR, a benchmark interest rate indexed to trillions of dollars of financial products,