Freddie Mac Investors Expand Legal Claims of Fraudulent Lending

Investors suing residential mortgage lender Freddie Mac have added fuel to their fire accusing the company of lying about risky loans and reporting falsified financial returns.

The new allegations are the result of recent interviews with former Freddie Mac employees and others who provided more details about the operations and finances of the mortgage giant, attorneys said. The amended lawsuit was filed in U.S District Court in Manhattan, N.Y. against the lender as well as the company’s former chief executive officer, chief financial officer, and chief business officer.

Freddie Mac and Fannie Mae, the nation’s largest residential mortgage providers, were seized by the U.S. government in September 2008 in a move designed to save them from a crippling collapse under the weight of mounting bad loans. They remain in operation under a government conservatorship.

As the financial crisis unfolded, shares of Freddie Mac plummeted from a high of about $28 in 2008 to about $1 after the conservatorship was announced, costing investors billions. The lead plaintiff in the case is Central States Southeast and Southwest Areas Pension Fund. National Elevator Industry Pension Plan also is a plaintiff in the suit, which is seeking class-action status.

Some former Freddie Mac employees who were interviewed as part of the lawsuit said the lender was an “appalling run company” that showed signs that its capital was insufficient to support operations as early as August 2007, officials said.

The lawsuit also accuses Freddie Mac executives of using false and misleading statements to illegally inflate the value of company shares while manipulating financial data to make the firm seem healthier than it was.

“Freddie Mac was essentially a wolf in sheep’s clothing,” said David George, an attorney for the shareholders, according to news service Reuters.

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