Litigation Team Wins Dismissal for Top Former Freddie Mac Officers
A Ropes & Gray litigation team has won dismissal of a securities fraud action against the former CEO and other top executives of the Federal Home Loan Mortgage Corporation (Freddie Mac).
The case was filed by shareholders seeking to recover multibillion-dollar investment losses in the wake of the subprime mortgage crisis. Freddie Mac was a leading participant in the mortgage-backed securities market and became the subject of extensive scrutiny following the real estate sector collapse. At the height of the crisis, the federal government put Freddie Mac into conservatorship, which is akin to reorganization under Chapter 11 of the Bankruptcy Code.
The plaintiffs claimed that the defendants violated Rule 10b-5 and Section 20(a) of the Securities Exchange Act of 1934, by making allegedly misleading statements about the company's exposure to subprime mortgages, capital adequacy and internal control systems. The Ropes & Gray team filed a motion to dismiss the complaint. It argued that the alleged misstatements were not actionable, and that the plaintiff failed to allege facts suggesting that the defendants acted with the requisite scienter. It also argued that the plaintiffs failed to show that the alleged misstatements—rather than the devastating market crash—caused their losses.
On March 30, Judge Keenan of the Southern District of New York dismissed the plaintiffs' compliant in its entirety. In his opinion, Judge Keenan relied on each of the arguments made by the Ropes & Gray team. He also dismissed all claims against Freddie Mac, a co-defendant in the action.
The Ropes & Gray team was led by Boston-based securities litigation partners Randy Bodner. It also included Boston-based securities litigation associate C. Thomas Brown and Boston-based general litigation associate Andrew O'Connor.
The case is captioned Kuriakose v. Federal Home Loan Mortgage Corp., No. 08 Civ. 7291 (S.D.N.Y.). It is one of several securities actions in which Ropes & Gray represents current and former officers for Freddie Mac.