Two pension funds suing Freddie Mac over investment losses tied to the firm’s exposure to subprime mortgages experienced a significant set back in court this week. A federal district court judge in New York dismissed a lawsuit filed by Southeast and Southwest Areas Pension Fund and National Elevator Industry Pension Plan — two Freddie investors, who allege Freddie mislead a class of investors after experiencing a $2 billion loss for the third quarter of 2007 by “materially misrepresenting Freddie’s exposure to risky mortgage products.” The pension funds also alleged that Freddie and its leadership team mislead investors about the “sufficiency of the (firm’s) capital, and the accuracy of its financial reporting.” The parties to the complaint represent a class of investors who purchased Freddie securities from Nov. 20, 2007 to Sept. 7, 2008. In the original suit filed back in 2008, the parties claim Freddie’s material misrepresentations led to inflated share prices, which fell along with the American housing market, thereby shaking the financial foundation of both Freddie Mac and Fannie Mae. United States District Judge John Keenan dismissed the plaintiffs’ case against Freddie Mac this week, saying “plaintiffs have failed adequately to plead the existence of actionable misstatements or omissions of fact relating to Freddie Mac’s exposure to non-prime mortgage loans or its capital adequacy.” Write to Kerri Panchuk.

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