897 F. Supp. 2d 168
S.D.N.Y.2012Background
- Plaintiffs bring a putative securities class action against Freddie Mac and four individuals under Section 10(b) and Rule 10b-5.
- Class period runs from November 20, 2007 to September 7, 2008, following Freddie Mac’s $2 billion Q3 2007 loss.
- Plaintiffs allege misrepresentations about subprime exposure, capital sufficiency, and GAAP reporting.
- Defendants move to dismiss the SAC with prejudice under Rule 12(b)(6) and PSLRA provisions; Plaintiffs seek leave to file a third amended complaint and to lift the PSLRA discovery stay.
- The court grants the motion to dismiss with prejudice, denies leave to amend, and denies the stay motion as moot; case is closed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Loss causation | SAC shows partial disclosures revealing concealed risks. | Disclosures were already in the public domain and do not causally link to losses. | Loss causation absent; alleged disclosures do not tie to the losses. |
| Materiality and PSLRA safe harbors | Some statements were not protected by safe harbors and were material. | Statements are forward-looking or puffery, protected by PSLRA safe harbors. | Safe harbors apply; materiality not adequately pleaded. |
| Scienter | FHFA memo implies recklessness or knowing misrepresentation. | FHFA memo does not show intent or conscious misbehavior; lacks motive. | No strong inference of scienter; amended pleadings futile. |
| GAAP violations | Alleged FAS 115/109 violations show misstatement. | GAAP judgments are within managerial discretion; no improper actions shown. | GAAP claims inadequately pleaded; no restatement or convincing misstatement shown. |
| Leave to amend futile | Leave to amend TAC denied; amendment would be futile. |
Key Cases Cited
- Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161 (2d Cir. 2005) (loss causation and proximate cause framework)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (motive and opportunity/strong inference standard for scienter)
- In re Scholastic Corp. Sec. Litig., 252 F.3d 63 (2d Cir. 2001) (requirement to plead falsity, scienter, and causation with specificity)
- Olkey v. Hyperion 1999 Term Trust, Inc., 98 F.3d 2 (2d Cir. 1996) (various aspects of accounting disclosures and materiality)