Freddie Mac 2006 Annual Report Download - page 149

SEC Investigation. In June 2003, the SEC initiated a formal investigation of Freddie Mac in connection with the
restatement. On August 18, 2004, we announced that we had received a ""Wells Notice'' from the staÅ of the SEC. The
Wells Notice advised us that the SEC staÅ is considering recommending that the SEC initiate a civil injunctive action
against us for possible violations of federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934
and the SEC's Rule 10b-5, as well as Sections 17(a)(1), (2) and (3) of the Securities Act of 1933. The Wells Notice also
indicated that the SEC staÅ may seek a permanent injunction and a civil money penalty in connection with the
contemplated action. We continue to cooperate fully with the SEC's investigation.
Securities Class Action Lawsuits. In June 2003 and thereafter, securities class action lawsuits were brought in against
us and certain former executive oÇcers in connection with the restatement and eventually in the U.S. District Court for the
Southern District of New York. The plaintiÅs claimed that the defendants improperly managed earnings to create a
misleading impression of steady earnings by Freddie Mac, that they engaged in a number of improper transactions that
violated GAAP and that they made false and misleading statements regarding the same. On October 26, 2006, the court
approved a settlement of the securities class action lawsuits, as well as the shareholder derivative actions described below.
The settlement of these actions included a cash payment of $410 million. The settlement does not include any admission of
wrongdoing by the company.
Shareholder Derivative Lawsuits. Two shareholder derivative lawsuits were Ñled during 2003 against certain former
and current executives and, in one of the suits, certain former and current members of the board of directors and Ñve
counterparties. The plaintiÅs alleged claims for breach of Ñduciary duties, indemniÑcation, waste of corporate assets, unjust
enrichment and aiding and abetting breach of Ñduciary duties in connection with the restatement. Both cases were
ultimately assigned to the same judge in New York who handled the securities class action lawsuits described above. As
described above, on October 26, 2006, the court approved a settlement of both shareholder derivative actions, as well as the
securities class action lawsuits. The settlement of these cases was based in part on corporate governance reforms we
instituted under our current management.
ERISA Lawsuits. Two class action lawsuits were Ñled in 2003 in the U.S. District Court for the Southern District of
Ohio against us, certain former executives, a former member of our board of directors, and our Retirement Committee
alleging violations of the Employee Retirement Income Security Act, or ERISA. On March 1, 2007, the court approved a
settlement of the ERISA lawsuits, which resulted in the closure of the Department of Labor investigation described below.
The settlement of these actions includes a payment of $4.65 million, which will be fully covered by insurance, and certain
non-monetary relief, including an agreement to appoint an independent Ñduciary to oversee the Freddie Mac Stock Fund,
one of the investment options under our Thrift/401(k) Savings Plan. The settlement does not include any admission of
wrongdoing by the company.
Department of Labor Investigation. In July 2003, the Department of Labor began an investigation of our
Thrift/401(k) Savings Plan in relation to the restatement. We announced on August 21, 2006, that in anticipation of the
proposed settlement of the ERISA litigation, the Labor Department informed the company that it closed its investigation of
the Thrift/401(k) Savings Plan.
OFHEO Proceedings. In December 2003, OFHEO Ñled administrative notices of charges against us and
Messrs. Brendsel and Clarke, two of our former executive oÇcers. In its charge against us, OFHEO sought to have us take
certain actions in connection with these individuals' salaries and compensation as well as their termination status with the
company. On September 9, 2005, we entered into a stipulated consent order with OFHEO to settle the administrative
notice of charges against us. Under the terms of the consent order, we agreed to produce certain documents and make
available any current employees that OFHEO requests to interview in connection with its ongoing administrative actions
against Messrs. Brendsel and Clarke, and to take certain additional steps following the administrative actions against the
former oÇcers in accordance with any Ñnal order resulting in those actions. The text of this consent order and a related
production agreement are available on OFHEO's website at www.ofheo.gov. In agreeing to the consent order, we made no
admission regarding any wrongdoing by the company. Based on the consent order, OFHEO has dismissed the administrative
notice of charges against us and we have produced certain documents for OFHEO's review and made numerous current
employees available for interviews at OFHEO's request.
U.S. Attorney's Investigation. In June 2003, the U.S. Attorney's OÇce in Alexandria, Virginia commenced an
investigation of us related to the restatement. At present, we do not believe that the U.S. Attorney's OÇce will take any
adverse action against the company related to the restatement given the passage of time and the fact that no action has been
taken to date. It is the policy of the U.S. Attorney's OÇce not to comment on investigations or announce when an
investigation is closed without action. Accordingly, we cannot make any assurances that this matter has been resolved.
Antitrust Lawsuits. Consolidated lawsuits were Ñled against Fannie Mae and us in the U.S. District Court for the
District of Columbia, originally Ñled on January 10, 2005, alleging that both companies conspired to establish and maintain
137 Freddie Mac