Freddie Mac 2012 Annual Report Download - page 318

Table 16.8 — Composition of Changes in Fair Value for Debt Securities with Fair Value Option Elected
Other Debt Gains (Losses)(1)
For The Year Ended December 31,
2012 2011 2010
(in millions)
Changes in instrument-specific credit risk ..................................................... $(24) $ 2 $ (3)
Other changes in fair value ................................................................ 40 89 583
Fair value gains (losses), net ............................................................. $16 $91 $580
(1) Fair value changes for debt securities with the fair value option elected are recorded in gains (losses) on debt recorded at fair value in our consolidated
statements of comprehensive income.
For other debt recorded at fair value, the change in fair value attributable to changes in credit risk was primarily
determined by comparing the total change in fair value of the debt to the total change in fair value of the interest-rate and
foreign-currency derivatives used to hedge the debt. Any difference in the fair value change of the debt compared to the fair
value change in the derivatives is attributed to credit risk.
NOTE 17: LEGAL CONTINGENCIES
We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in the ordinary
course of business including, among other things, contractual disputes, personal injury claims, employment-related litigation
and other legal proceedings incidental to our business. We are frequently involved, directly or indirectly, in litigation
involving mortgage foreclosures. From time to time, we are also involved in proceedings arising from our termination of a
seller/servicer’s eligibility to sell mortgages to, and/or service mortgages for, us. In these cases, the former seller/servicer
sometimes seeks damages against us for wrongful termination under a variety of legal theories. In addition, we are
sometimes sued in connection with the origination or servicing of mortgages. These suits typically involve claims alleging
wrongful actions of seller/servicers. Our contracts with our seller/servicers generally provide for indemnification against
liability arising from their wrongful actions with respect to mortgages sold to or serviced for Freddie Mac.
Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. In
accordance with the accounting guidance for contingencies, we reserve for litigation claims and assessments asserted or
threatened against us when a loss is probable (as defined in such guidance) and the amount of the loss can be reasonably
estimated.
During 2012, we paid approximately $6 million for the advancement of legal fees and expenses of former officers and
directors pursuant to our indemnification obligations to them. These fees and expenses related to certain of the matters
described below. This figure does not include certain administrative support costs and certain costs related to document
production and storage.
Putative Securities Class Action Lawsuits
Ohio Public Employees Retirement System (“OPERS”) vs. Freddie Mac, Syron, et al. This putative securities class
action lawsuit was filed against Freddie Mac and certain former officers on January 18, 2008 in the U.S. District Court for
the Northern District of Ohio purportedly on behalf of a class of purchasers of Freddie Mac stock from August 1, 2006
through November 20, 2007. The plaintiff alleges that the defendants violated federal securities laws by making false and
misleading statements concerning our business, risk management and the procedures we put into place to protect the
company from problems in the mortgage industry. The plaintiff seeks unspecified damages and interest, and reasonable costs
and expenses, including attorney and expert fees. On April 10, 2008, the Court appointed OPERS as lead plaintiff and
approved its choice of counsel. On September 2, 2008, defendants filed motions to dismiss plaintiff’s amended complaint.
On November 7, 2008, the plaintiff filed a second amended complaint. On November 19, 2008, the Court granted FHFA’s
motion to intervene in its capacity as Conservator. On April 6, 2009, defendants moved to dismiss the second amended
complaint. On January 23, 2012, the Court denied defendants’ motions to dismiss. On March 28, 2012, the plaintiff filed its
third amended complaint, which included allegations based on a non-prosecution agreement entered into between Freddie
Mac and the SEC on December 15, 2011. On April 26, 2012, defendants filed motions to dismiss the third amended
complaint. The Court denied the motions on May 25, 2012. On August 17, 2012, plaintiff filed a motion to certify a class of
plaintiffs comprised of purchasers of Freddie Mac stock from August 1, 2006 through November 20, 2007, which Freddie
Mac has opposed. Discovery is ongoing.
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