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.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Keep up-to-date on tools and tactics to impress your clients and outshine your competition with the 2022 virtual bundle.Register Now×
Agent Appreciation Sale: Inman Select for only $85.CLAIM OFFER×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription