All Is Quiet On the Freddie Mac Front

The twists and turns along the landscape of the Uncle Sam economy remain ever challenging. How so?

What is an investor to do if he desires to sue an entity that is now part of Uncle Sam’s portfolio? If that is not challenging enough, how does one proceed with the process of discovery if those who could and want to share information have a gag order imposed upon them? What is going on here? Welcome to the world of Freddie Mac (FRE) investors circa 2009.

In the process of failing, did Freddie Mac’s management engage in illegal and fraudulent activities by misrepresenting the overall health of the company? Did they misrepresent the risks embedded in the portfolio? Many investors believe that to be the case and are considering bringing suit. Who possesses a lot of very useful information? Former employees. Not unlike former employees of many companies, Freddie Mac employees were required to sign departure agreements which compelled them to not share company information. If the employee does speak, he runs the risk of losing his severance. This experience is very common in corporate America. That said, Freddie Mac’s failure hardly represents corporate America. The New York Times addresses this legal and financial entanglement by writing, Freddie Mac’s Secrecy Pacts Face Court Test:

One year after the government took over and bailed out Freddie Mac, the giant mortgage finance company, federal regulators are blocking former employees from revealing information to investors who are suing the company for fraud, lawyers for shareholders say.

The Treasury has propped up Freddie Mac with more than $50 billion in taxpayer money since the company nearly collapsed more than a year ago, and officials warn that the company will probably need additional billions in the months ahead.

Federal prosecutors in Virginia and the Securities and Exchange Commission are already investigating whether the company misled investors about the risks it was taking with securities backed by subprime mortgages and no-document loans.

But in a battle that will surface on Friday in a federal courtroom in New York, the company and its primary government overseer, the Federal Housing Finance Agency, are trying to enforce secrecy agreements that scores of former employees signed as a condition for receiving severance payments when they left the company.

In their class-action lawsuit against Freddie Mac, three big union-based pension funds charge that Freddie Mac executives defrauded investors by concealing the company’s exposure to high-risk mortgages, its mounting losses and its inadequate capital position.

At the hearing on Friday, lawyers for shareholders will argue that Freddie Mac’s secrecy agreements amount to buying silence from willing witnesses who may have crucial information about what the company’s top executives knew at the time they were assuring investors that all was well. The lawyers will ask a judge to invalidate the restrictions, a move that Freddie Mac and federal regulators will say the court has no right to do.

“Federal dollars are being used to bribe people, to buy their silence,” said David George, a lawyer representing the pension funds in a class-action lawsuit.

Wow. Our country is sinking to new depths when we have an arm of the government openly working to prevent the truth from being revealed. To this point, the blockage of the truth would typically take place behind the scenes.

For those Freddie Mac employees who would like to share the truth as to what transpired, are they wondering ‘where did my country go?’

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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