BANGALORE (Reuters) - A U.S. federal judge dismissed a lawsuit filed by a group of pension funds against Freddie Mac FMCC.OB that claimed the mortgage finance giant had materially misrepresented its exposure to risky mortgage products, leading to investment losses.
The pension funds include Central States, Southeast and Southwest Areas Pension Fund, and National Elevator Industry Pension Plan, according to the court filing.
The plaintiffs had said in their lawsuit that following Freddie Mac’s disclosure of a $2 billion loss for the third quarter of 2007, the company had fudged its financial situation.
According to the plaintiffs, these misrepresentations initially led to inflated share prices, which eventually declined as Freddie Mac’s dire financial situation became clear to the market.
Judge John Keenan dismissed the plaintiff’s motion saying they have failed to adequately prove the misrepresentation or misstatement relating to Freddie Mac’s exposure to non-prime mortgage loans, accuracy of financial reporting and its capital adequacy.
“These claims fail because plaintiffs have not plausibly alleged that these misrepresentations proximately caused them economic harm,” Keenan wrote in his ruling.
The judge granted the plaintiffs sixty days to file an amended complaint.
The Bush administration seized Freddie Mac and Fannie Mae FNMA.OB in September 2008 as losses on mortgages they backed spiraled. They have since been propped up with more than $134 billion in taxpayer aid.
The Case is in re: Jino Kuriakose, individually and on behalf of all others similarly situated vs Federal Home Loan Mortgage Corp, Case No. 08-07281, U.S. District Court, Southern District Of New York.
Reporting by Sakthi Prasad in Bangalore; Editing by Kim Coghill