Freddie Settles With Employees

Freddie, a publicly-traded company, said insurance will fully cover payment of the settlement, which must still be approved by a federal court in New York.

Plaintiffs in the suit include past and present employees who held Freddie stock through their 401(k) retirement plans.

“Today’s proposed settlement further demonstrates our commitment to resolving past issues so that we can maintain our focus on achieving our mission,” Freddie Mac Chairman and CEO Richard F. Syron said in a statement, “serving our customers and running our business well.”

Lawyers for the plaintiffs who filed the class action lawsuit did not return phone calls to comment.

Lawyers working on the lawsuit reviewed millions of pages of documents and conducted 78 depositions as part of their case, court records show.

Freddie also announced that in anticipation of the settlement the Department of Labor has closed an investigation of Freddie’s Thrift/401(k) Savings Plan.

“The department has indicated that it will consider whether further action is warranted if the settlement is not finalized, approved and implemented as proposed,” Freddie said in the company’s statement.

As part of the settlement Freddie also agreed to retain an “independent fiduciary” to review and approve the settlement and the plan for how the money will be distributed.

An independent fiduciary will also oversee the Freddie Mac Stock Fund, one of the investment options under the company’s employee retirement plan.

Court records show that at the end of 2002, nearly $80 million of Freddie’s retirement plan was invested in Freddie stock.

“In addition,” Freddie said, “the company has agreed to conduct voluntary seminars to educate employees about investing and the importance of asset diversification.”

The lawsuit was filed after Freddie restated financial results from 2000 to 2002. Plaintiffs alleged the company inflated earnings results were restated.

The company’s accounting practices are still being investigated by the Securities and Exchange Commission.

Freddie’s accounting problems have cost the company millions of dollars in fines and lawsuit settlements.

The company paid $410 million to settle a class action shareholder lawsuit, $125 million in fines to government regulators and $3.8 million to settle a lawsuit filed by the Federal Election Commission.

Freddie has told regulators it is getting its financial house in order by improving its investment strategy and accounting controls.

In a letter sent last month to the Office of Federal Housing Enterprise Oversight, a government regulator, Freddie said it has limited the amount of mortgage-related holdings in its investment portfolio.

“The limit … will remain in place until the company has returned to producing and publicly releasing quarterly financial statements prepared in conformity with (Generally Accepted Accounting Principles),” the company said in the letter.

“We continue to work on a series of initiatives to improve our financial reporting infrastructure and remediate material weaknesses and other deficiencies in our internal control environment,” the company said.

Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: PatCrowley@MortgageDaily.com