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UPDATE 1-Lawsuit against Freddie Mac rejected by U.S. appeals court

Tuesday, 5 Nov 2013 | 9:56 AM ET

NEW YORK, Nov 5 (Reuters) - A federal appeals court on Tuesday upheld the dismissal of a lawsuit accusing Freddie Mac of misleading shareholders by understating its subprime mortgage exposure and overstating its capital strength prior to the financial crisis.

The 2nd U.S. Circuit Court of Appeals in New York said shareholders, in their lawsuit, failed to show the necessary connection between their losses and alleged misleading or inadequate disclosures by Freddie Mac and company officials, including former Chief Executive Richard Syron.

Freddie Mac is a government-controlled mortgage company that was seized by U.S. regulators in September 2008. It is now overseen by the Federal Housing Finance Agency.

Shareholders led by the Illinois-based Central States, Southeast and Southwest Areas Pension Fund had accused Freddie Mac of hiding its risks after revealing a $2 billion quarterly loss on Nov. 20, 2007.

But the appeals court said the stock purchases and losses "coincided with a marketwide phenomenon - the housing bubble burst," and that Freddie Mac had made "extensive disclosures" during the class period.

Douglas Wilens, a partner at Robbins Geller Rudman & Dowd representing the shareholders, did not immediately respond to requests for comment.

Jordan Hershman, a partner at Bingham McCutchen representing Freddie Mac, had no immediate comment. Frank Volpe, a partner at Sidley Austin representing Syron, did not immediately respond to requests for comment.

Tuesday's decision upheld a September 2012 ruling by U.S. District Judge John Keenan in Manhattan. The lawsuit against Freddie Mac was filed in 2008.

The case is Central States, Southeast and Southwest Areas Pension Fund v. Federal Home Loan Mortgage Corp et al, 2nd U.S. Circuit Court of Appeals, No. 12-4353.

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