Freddie Mac 2009 Annual Report Download - page 282

On October 15, 2008, the U.S. District Court for the Eastern District of Virginia consolidated the LMPERS and Adams
Family Trust cases. On October 24, 2008, a motion was filed to have LMPERS appointed lead plaintiff. On November 3,
2008, the Court granted FHFA’s motion to intervene in its capacity as Conservator. In that capacity, FHFA also filed a
motion to stay all proceedings and to substitute for plaintiffs in the action. On December 12, 2008, the Court consolidated
the Bassman litigation with the LMPERS and Adams Family Trust cases. On December 19, 2008, the Court stayed the
consolidated cases pending further order from the Court. On July 27, 2009, the Court granted FHFA’s motion to substitute
for plaintiffs and lifted the stay. On August 20, 2009, the plaintiffs filed an appeal of the Court’s order substituting FHFA for
the plaintiffs. On October 29, 2009, FHFA filed a motion to dismiss the appeal for lack of appellate jurisdiction, which
motion remains pending. On November 16, 2009, the Court issued an Order granting the parties’ consent motion to stay all
proceedings, including the deadlines for the Defendants to answer or otherwise respond to the complaints, to June 1, 2010.
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.
A shareholder derivative complaint, purportedly on behalf of Freddie Mac, was filed on June 6, 2008 in the
U.S. District Court for the Southern District of New York against certain former officers and current and former directors of
Freddie Mac by the Esther Sadowsky Testamentary Trust, which had submitted a shareholder demand letter to the Board of
Directors in late 2007. The complaint alleges that defendants caused the company to violate its charter by engaging in
“unsafe, unsound and improper speculation in high risk mortgages to boost near term profits, report growth in the company’s
mortgage-related investments portfolio and guarantee business, and take market share away from its primary competitor,
Fannie Mae.” Plaintiff asserts claims for alleged breach of fiduciary duty and declaratory and injunctive relief. Among other
things, plaintiff also 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, in its capacity as Conservator,
FHFA filed a motion to intervene and substitute for plaintiffs. FHFA also filed a motion to stay all proceedings for a period
of 90 days. On January 28, 2009, the magistrate judge assigned to the case issued a report recommending that FHFA’s
motion to substitute as plaintiff be granted. By order dated May 6, 2009, the Court adopted and affirmed the magistrate
judge’s report substituting FHFA as plaintiff in place of the Trust and stayed the case for an additional 45 days. Plaintiff has
filed a notice of appeal with respect to the Court’s May 6 ruling, and proposed intervenor Bassman has filed his notice of
appeal with respect to the May 6 ruling and the Court’s denial of his earlier motion to intervene or, alternatively, appear as
amicus curiae. On October 29, 2009, FHFA filed a motion to dismiss the appeal for lack of appellate jurisdiction. On
November 16, 2009, the Court approved a stipulation by the parties extending the time for the Defendants to answer, move,
or otherwise respond to the complaint to June 1, 2010. 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.
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 U.S. Securities and Exchange Commission that it is also conducting an 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 is also conducting 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.
Indemnification Requests. 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 April 30, 2009, the Court consolidated the Mark case with the Kreysar case discussed below, and the plaintiffs filed a
consolidated class action complaint in the Kreysar case on July 2, 2009. 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. 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 the Mark 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.
279 Freddie Mac