Posted on 01/27/2008 11:45:43 AM PST by BGHater
The giant mortgage financer known as Freddie Mac swindled an Ohio pension system out of as much as $27 million by concealing its heavy investments in the battered subprime lending industry, Attorney General Marc Dann alleges in a lawsuit.
Dann said the Federal Home Loan Mortgage Corp. "secretly and intentionally participated in one of the largest housing investment deceptions in modern U.S. economic times."
The lawsuit, filed Friday in federal court in Youngstown, alleges that Freddie Mac downplayed its investments in subprime lenders before its stock nosedived in November on news that it lost $2 billion in the third quarter, largely because of the collapse in the subprime market.
The Ohio Public Employees Retirement System, which represents nearly 900,000 current and retired government employees and their beneficiaries, lost up to $27.2 million in the crash, the lawsuit alleges.
Dann's office has named the retirement system as the lead plaintiff in the case, which could broaden to include other public pension plans.
In a press release announcing the lawsuit after the close of business yesterday, Dann said he is determined to hold mortgage lenders accountable for their role in the collapse of the subprime market.
"By authorizing me to bring this suit on their behalf (state pension officials) are protecting the interests of the pension plan, the workers and retirees who depend upon it and the taxpayers whose hard-earned dollars fund it," Dann said. "And they are also sending a loud and clear message to Wall Street that this type of fraud and manipulation will not be tolerated by the people who live on the Main Streets that are being devastated by what Freddie Mac has done."
Dann's aides did not return messages seeking comment after sending the announcement.
Freddie Mac spokeswoman Sharon J. McHale said the company does not comment on pending litigation.
Based in suburban Washington, Freddie Mac is backed by the federal government but its stock is publicly traded. Like its larger cousin Fannie Mae, Freddie Mac purchases, guarantees and securitizes mortgages.
McHale noted that as of Nov. 15, more than 97 percent of Freddie Mac's securities were rated AAA. Although some securities were downgraded amid turmoil in the mortgage industry, Freddie Mac is holding onto them for a period sufficient to recover all unrealized losses, the company said.
In addition to charging Freddie Mac with concealing its involvement in the subprime market, Dann's lawsuit says the company failed to account for the level of risk it was incurring. The lawsuit also says the company neglected to say that it could not gauge the level of exposure it had with loan guarantees.
In 2006, Freddie Mac paid $410 million to settle a national class-action lawsuit led by two Ohio pension systems alleging that it had misstated its finances between 1999 and 2003.
politically-aspirant-attorneys-general-alert.
Clang!
Probably, but we are going to need to push the financial sector for more transparancy, and there are only two ways I see to do it, through regulation, or through investors and shareholders demanding it. I am rooting for the investors and shareholders. The courts should be available to investors who lost money through undisclosed risk.
Gotta disagree.
Fannie/Freddie are not allowed to buy mortgages in the sub-prime space - ie, a “conforming” mortgage that is made by some lender and securitized is not supposed to be picked up by Fannie/Freddie.
So what did they do? They went out and bought a bunch of CDO crap with sub-prime in it. Morons. Completely, totally thwarted the risk profile set out for them.
Because these GSE’s have the imprimatur of the faith/credit of the US government, you, I and every other taxpayer are on the hook for this stupidity.
Doubly so for the residents of states who had pensions investing in Fannie/Freddie stock/bonds/preferred.
Fannie/Freddie need to be peeled open, their books laid bare and their management held up to scrutiny. It will take a court to do this, since the US Congress has been unwilling to exercise their oversight authority to the extent necessary to clean up the books of these GSE’s.
I hope all 50 states sue to open the books of Fannie/Freddie.
US Congress has been unwilling to exercise their oversight authority
Really? Just how much are the tax payers paying for this poorly run entity? Does Government run health care have similar risk? Or will Senator Obama and Senator Clinton exercise their heath care oversight authority?
Freddie Mac is backed by the federal government but its stock is publicly traded
So now if your stocks decrease in value, sue them. And why if it was retirement and Pension money would you invest in the stock market? Everybody knows when you get near retirement you shift your money into fixed income.
How much are we paying? Good question. A very good question.
Supposedly, we’re paying ‘nothing’ - it is quasi-private enterprise, merely ‘sponsored’ by the government.
But because of the unwillingness of Congress to get down to the bottom of the accounting and financial malfeasance in these GSE’s, who knows?
And with Bush’s bailout plant raising the limit on ‘conforming’ mortgages to sky-high limits (to enable banks to dump Alt-A paper onto Freddie/Fannie) — wooo hooo... we taxpayers could be on the hook for bailing out a few hundred billion of bad Fannie/Freddie paper before all the turds have finished hitting the turbines.
http://www.washingtonpost.com/wp-dyn/articles/A41165-2004Sep22_2.html
There are three ways to invest in Fannie/Freddie: the Fannie/Freddie bonds, which are rated “AAA” and as such, should be entirely suitable for any pension plan investment, preferred stock and then the common stock.
Pension plans are regularly invested in stocks. You, as an individual, need to change your asset mix as you get nearer to retirement, because you’re not generating new income to replace any losses you might suffer. A pension plan, with more money coming in every year from young employees, regularly has investments in stocks as well as bonds. Some of the pension plan will be in cash and cash equivalent assets to make that money ready to be paid to retirees drawing on the plan at the current time. There are plenty of pension plans that even have some of their assets placed with hedge funds and funds of hedge funds. CalPERS is an excellent example.
Fannie/Freddie’s debt, preferreds and common stocks used to be a very sound investment for long-term investors. The accounting irregularities and now the fiscal malfeasance of Fannie/Freddie in the sub-prime market are more than ample grounds for debtholders and investors in these two GSE’s to open lawsuits against them.
a tort lawyer's version of dirty-talk.
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