Freddie Mac shareholders lose in subprime mortgage case

A Federal Appeals Court in New York has dismissed a shareholder suit against Freddie Mac.

The shareholders alleged that they suffered losses because Freddie Mac failed to disclose the possibility that it would become insolvent prior to the 2008 economic crash. The plaintiffs, led by Central States, Southeast and Southwest Areas Pension Fund, accused the government-sponsored mortgage backer of hiding its precarious finances and investments in subprime mortgages.

The court ruled that the shareholders weren’t able to sufficiently link their losses to the alleged lack of full disclosure by the firm, which was taken over by U.S. regulators in September 2008.

“Central States does not plausibly allege a causal connection between the drop of the share price and the information revealed in the corrective disclosures,” a three-judge panel for the U.S. Court of Appeals for the Second Circuit wrote.

The losses incurred by the shareholders also coincided with the market-wide phenomenon of the housing bubble burst, the judges added, and were not apparently linked to the concealment of “hundreds of billions of dollars” of exposure to subprime mortgages.

Freddie Mac’s former CEO Richard Syron did not immediately respond to Reuters’ request for comment. [Reuters] — Julie Strickland