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Federal court reinstates complaint against Freddie Mac
Federal court reinstates complaint against Freddie Mac

The Sixth Circuit U.S. Court of Appeals [website] Wednesday reopened [opinion, text] a complaint by the Ohio Public Employees Retirement System (OPERS) [website] against mortgage giant, Freddie Mac [website]. The complaint, based on Third Amendment grounds, was originally filed in 2008. OPERS is a state-pension plan for Ohio employees which purchased stock in Freddie Mac in 2006 and 2007. The complaint alleged that Freddie Mac engaged in “permissive purchasing strategies” when it began to heavily deal in “subprime-like” loans in the mid 2000’s. OPERS claims that this practice resulted in lower standards of review and subsequently insufficient evaluation and fraud detection software. Initially, a lower court threw out the complaint for failure to allege loss causation. This court found, however, that when “[t]aking the allegations in the Complaint as true and drawing all reasonable inferences in OPERS’s favor” the alleged loss causation had been sufficiently proven.

In 2012 the Federal Housing Finance Agency [official website] (FHFA), acting in its capacity as conservator for Freddie Mac, reached a settlement [JURIST report] with JPMorgan Chase & Co. [corporate website] for $480 million. The FHFA accused JPMorgan of misrepresenting the quality of sub-prime mortgages sold to Freddie Mac. The FBI [official website] began an investigation [JURIST report] in September 2008 of 26 financial institutions for possible mortgage fraud, including Freddie Mac. That same month, Freddie Mac’s share prices plummeted after its financial weakness was revealed to the public, leading the company to be placed under government custody. More recently, the effects of the 2008 financial crisis are still reverberating through the legal system. In April a federal judge unsealed an opinion [JURIST report] from late March ruling that the government did not have grounds to designate the major insurance company, Metlife [website], as “too big to fail,” a designation only four firms have received.