Ohio Attorney General Sues Freddie MacAug 8, 2003 | AP
Ohio's attorney general sued mortgage giant Freddie Mac on Friday over what he called the company's "deliberately misleading accounting practices."
Attorney General Jim Petro is seeking to recover more than $25 million lost by state retirement systems for teachers and public employees.
Lawsuits were filed in federal courts in Columbus, Virginia and New York, said Kim Norris, a spokeswoman for Petro. West Virginia also has sued Freddie Mac, saying it lost $1.7 million. Both states have filed to be the lead plaintiff in a class-action lawsuit.
Petro said the company's former executive team 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.
Freddie Mac spokeswoman Sharon McHale declined comment on the suit, noting that the company generally doesn't comment on pending litigation.
An internal investigation made public last month found that Freddie Mac, the country's second-largest mortgage buyer, breached accounting rules and manipulated internal accounts in a drive to smooth out volatility in earnings and meet Wall Street's forecasts.
As a result, the company underreported its profits by between $1.5 billion and $4.5 billion in 2000-2002. The inquiry also found a culture of secrecy among leaders of the $40 billion-a-year company, No. 32 of the Fortune 500, that kept company directors â€” and ultimately investors in the dark concerning financial information.
To resolve its accounting errors, Freddie Mac plans to restate past results, adding back the billions of dollars in profits that it underreported. An equivalent amount would be deducted from earnings during the next few years.
The Justice Department and the Securities and Exchange Commission are investigating Freddie Mac, which announced in early June that it had ousted three top executives.