The lawsuits come after recent investigations uncovered that Freddie Mac had managed its books to keep period-to-period earnings steady. It also recently said it would have to restate results, adding up to $4.5 billion to recently reported profits, according to news reports.
With this information, the West Virginia Investment Management Board and the Central State Teamster Fund filed suit in the US District Court for the Southern District in Manhattan on Friday. The two West Virginia suits, which were combined into a class action, contend Freddie Mac’s accounting skullduggery cost the Investment Board $1.8 million and the Teamster’s Fund $8.2 million.
Ohio Joins In
Likewise, Ohio Attorney General Jim Petro filed a suit later in the day in the US District Court in Cincinnati, seeking damages related to losses suffered in the State Teachers Retirement System (STRS) and Public Employees’ Retirement System (PERS) as a result of accounting issues and a subsequent management shakeup at Freddie Mac. Mark Gribben, a spokesman for Petro, said the two Ohio pension funds covering teachers and general state employees lost an estimated $25 million between 2001 and July 2003, as Freddie Mac’s stock lost about $20 a share (the Public Employees Retirement System lost $16.8 million in Freddie Mac stock value, and the State Teachers Retirement System lost $9.4 million).
Petro said the company’s former executive team, ousted in July, knowingly misled the public with an “overly” vague disclosure of information and allowed lower level managers to make financial decisions even though they didn’t have the proper skills and information. “Freddie Mac was so intent on maintaining its public image that its officers and board were willing to ignore the rules of proper accounting at the expense of investors,” Petro said in a statement.
Ohio’s three other pension funds representing school employees, firefighters, and police officers also lost investments in Freddie Mac but to a much lesser degree, according to Mr. Petro. They could also be included in any class-action suit, according to the Toledo Blade.
While other states have filed, or are contemplating filing, similar suits, Gribben said the lawsuits were expected to be consolidated and that Ohio wanted lead plaintiff status, a process the state is no stranger to. Last month, STRS filed a suit against AOL Time Warner, alleging losses of approximately $200 million(See California, Ohio Pensions File AOL Time Warner Suits ). Previously, p ension systems in the Buckeye State – seeking to recoup investment losses in connection with Wall Street scandals – filed suits in relation to accounting shenanigans surrounding Enron, Global Crossing, and WorldCom (See Ohio Will Stay Close to Home With Enron, WorldCom Claims).