Freddie Mac to pay $410 million in lawsuit settlements
April 21, 2006
Expects settlements to ding Q1 earnings by $220 million
Secondary mortgage giant Freddie Mac has agreed to pay $410 million to settle securities class-action and shareholder derivative lawsuits stemming from accounting mistakes that led the company to restate three years of earnings.
The settlement is expected to reduce first-quarter 2005 net income by approximately $220 million after tax, including the application of expected insurance proceeds, the company said in a statement Thursday. This impact is in addition to other matters affecting 2005 net income, including approximately $200 million of adjustments and corrections previously discussed in a company announcement.
"Today's settlement, like the settlement announced earlier this week with the Federal Election Commission, enables this management team to resolve past issues so that we can focus squarely on meeting our important housing mission, running the business well and serving the needs of our customers," said Richard F. Syron, Freddie Mac's chairman and CEO. "We are pleased with the progress we are making in moving Freddie Mac forward."
The lawsuit settlement is also based on corporate governance reforms instituted by the company under its current management, and does not include any admission of wrongdoing by the company.
The class-action cases, entitled Ohio Public Employees Retirement System, et al. v. Freddie Mac, et al., against the company and certain former executive officers, and the shareholder derivative lawsuits, entitled Maureen Henry, et. al. v. Brendsel, et al., and Esther Sadowsky Testamentary Trust v. Brendsel, et al., on behalf of the company against certain former executive officers and current and former members of the company's Board of Directors, have been consolidated and are pending in the U.S. District Court for the Southern District of New York.
The proposed settlement is subject to a number of conditions, including approval by the Retirement Boards of Ohio Public Employees Retirement System and State Teachers Retirement System of Ohio; negotiation and execution of final documentation; and preliminary and final court approval.
The proposed settlement does not resolve other legal proceedings related to the restatement, the company said.
Freddie Mac and Fannie Mae were chartered by Congress to increase home ownership by keeping a steady flow of mortgage funds available. The companies purchase mortgages and package them as securities for resale to investors or for their own investment.
Both mortgage giants have been rocked by accounting scandals. In December 2004, Fannie Mae replaced Franklin Raines, its chairman and CEO, who announced he was taking early retirement, and Fannie Mae's chief financial officer, Timothy Howard, resigned Dec. 21.
Copyright 2006 Innam News