Fannie Mae, Freddie Mac Investors Could Recover Losses Through Securities Arbitration

by InvestorLawyers on February 23, 2012

in FINRA,Merrill Lynch,Securities Fraud

Stock fraud lawyers are investigating potential securities arbitration claims for investors who suffered losses through their investments in Fannie Mae and Freddie Mac Preferred Securities. Claims are currently being filed against Merrill Lynch and other brokerage firms with the Financial Industry Regulatory Authority’s (FINRA) Office of Dispute Resolution. According to the allegations of claims already filed with FINRA, fraudulent misrepresentation and omission of material facts occurred when the investments were solicited to investors. The actual risks associated with Freddie Mac and Fannie Mae preferred stock investments were not fully and accurately disclosed to investors with a conservative portfolio.

Fannie Mae and Freddie Mac Investors Could Recover Losses Through Securities Arbitration

Allegedly, retail investors were told that the investments were as safe as de-facto government-backed bonds. However, this was not the case. In fact, significant risks were associated with Fannie Mae and Freddie Mac-preferred stocks. In reality, preferred stocks are more volatile than bonds and have characteristics that make them much more risky than corporate bonds’ guaranteed status. These risks were not disclosed to investors.

Furthermore, in the event that the company should encounter a financial problem when waiting for the company’s assets, preferred stockholders would wait behind bond holders. In a company like Freddie Mac or Fannie Mae, if the company fails, bondholders would be the first to receive repayment. It is for this reason that holders of Freddie Mac and Fannie May-preferred stock suffered an extreme default risk. Preferred stock holders were not informed that they were not fully protected. In addition, Freddie Mac and Fannie Mae eliminated preferred dividend payments, which, for income purposes, was an important disclosure fact related to a product investment.

Fannie Mae’s preferred stock rating was downgraded by Fitch Ratings in early 2008. Then, in August 2008, it was downgraded to the lowest investment grade credit rating by Moody’s. The United States Treasury Secretary Henry Paulson announced on September 8, 2008 that Freddie Mac and Fannie Mae would be placed under Federal Housing Finance Agency Conservatorship. Following this announcement, investors saw their preferred stock investments become essentially worthless. And yet, even in the face of the severely declining financial conditions of the companies, Freddie Mac and Fannie Mae preferred stock was still promoted by firms.

Investors who held Fannie Mae and Freddie Mac preferred stock and suffered significant losses as a result may be able to recover losses through securities arbitration. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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