Ohio AG Sues Freddie Mac for Participation in Subprime Crisis

January 23, 2008 No Comments »

Attorney General Marc Dann filed a lawsuit on behalf of the Ohio Public Employees Retirement System (OPERS) and common shareholders against mortgage financier Freddie Mac for the company’s investment in securities backed by subprime mortgage loans.

The suit, which was filed in a federal court in Youngtown, Ohio, alleges that Freddie and its top executives “secretly and intentionally participated in one of the largest housing investment deceptions in modern U.S. economic times.”

Specifically, it says the government-sponsored entity intentionally hid the fact that it had invested billion of dollars in subprime-based securities, failed to establish checks and balance to manage the risk, and failed to disclose its inability to determine its exposure to the harmful securities.

And claims its officers artificially inflated the company’s stock price through false public financial statements and other public misstatements.

“I would like to commend the trustees and staff at OPERS for supporting my effort to hold Freddie Mac accountable for the role the company and its top executives played in bilking investors and fueling the foreclosure crisis that is destroying neighborhoods across our state and the entire nation,” Dann said in a statement.

“By authorizing me to bring this suit on their behalf they 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. 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.”

OPERS stands to lose as much as $27.2 million as a result of the alleged fraud, according to the Attorney General.

The news isn’t all that surprising, as Dann mentioned two weeks ago that he was considering a state lawsuit against investment banks and other entities for their involvement in the mortgage crisis, felt particularly hard in Ohio where foreclosures have soared.

In a previous case, the Ohio pension fund won a $410 million settlement in which it was the lead plaintiff against Freddie Mac.

Shares of Freddie Mac rose $3.84, or 13.39%, to $32.52, but remain more than 50% lower than their 52-week high of $68.12.

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