SEC Lawsuit Related to Financial Crisis Activities Will Proceed.

[ by Melanie Gretchen ]

The Federal Housing Finance Agency ("FHFA") $200 billion lawsuit against several major bank broker-dealers, continues to wend its way through the U.S. judicial system.  But the agency, which regulates and supervises Fannie Mae and Freddie Mac, could do little to protect former executives of Freddie Mac who face serious charges from the SEC. 

The former executives - CEO Richard Syron, Chief Business Officer Patricia Cook, and EVP for Single Family Guarantee Business Donald Bisenius - tried but failed to get the courts to dismiss an SEC lawsuit in what is considered one of the biggest enforcement actions against executives spilling out of the financial crisis.

The "three amigos" are charged with misleading investors about the company's exposure to risky mortgage loans.  The SEC first served the lawsuit against the former officials in December 2011, about the same time the SEC also sued 3 former Fannie Mae executives - including ex-CEO Daniel Mudd.

U.S. District Judge Richard Sullivan in Manhattan ruled ...   that the lawsuit's allegations support a plausible inference that Syron and Cook misrepresented the company's subprime exposure.  The judge further rejected the defendants' argument that, even if they verbally misrepresented Freddie's exposure, investors could have looked to (and relied upon) detailed quantitative information to calculate its subprime exposure.

"In this case, the Court cannot conclude that no reasonable investor could have found the alleged misrepresentations and omissions to be material in light of the quantitative disclosures."

The case: Securities and Exchange Commission v. Syron, U.S. District Court, Southern District of New York, No. 11-09201.

For further details, go to [Reuters, 4/1/13].

To contact Melanie Gretchen: melanie@compliance-insights.com.