SEC v. RICHARD F. SYRON; PATRICIA L. COOK; and DONALD J. BISENIUS, Southern District of New York (Dec. 16, 2011) — Complaint

~I eN 9201 

UNITED STATES DISTRICT COURT 
FOR THE SOUTHERN DISTRICT OF NEW YORK 
U.S. SECURITIES AND EXCHANGE 
COMMISSION, 
Civil Action No. 
U-cv-
Plaintiff, 
ECFCASE 
v. 
RICHARD F. SYRON, 
PATRICIA L. COOK, and 
DONALD J. BISENIUS, 
Defendants. 
COMPLAINT 
Plaintiff U.S. Securities and Exchange Commission (the "Commission"), alleges for its 
Complaint 
as follows: 
SUMMARY 
OF ALLEGATIONS 
1. This action arises out of a series of materially false and misleading public 
disclosures by the Federal Home Loan Mortgage Corporation ("Freddie Mac" or the 
"Company") and certain 
of its senior executives relating to the exposure of Freddie Mac's largest 
business segment -  Single Family Guarantee -  to subprime mortgage loans. 
2. Between March 23,2007, and August 6,2008 (the "Relevant Period"), a period of 
heightened investor interest in the credit risks associated with subprime loans, Freddie Mac and 
defendants Richard F. Syron ("Syron"), Patricia 
L. Cook ("Cook"), and Donald· J. Bisenius 
("Bisenius") misled investors into believing that the Company had far less exposure to these 
riskier mortgages than in fact existed. To that end, at various times, each made or substantially 
assisted Freddie Mac and each other in making materially false· and misleading statements that 

claimed in substance that Freddie Mac had little or no exposure to subprime loans in its Single 
Family Guarantee business. 
3. While Freddie Mac disclosed during the Relevant Period that the exposure. of its 
Single Family Guarantee business to subprime loans was between 
$2 billion and $6 billion, or 
between 
0.1 percent and 0.2 percent, of Freddie Mac's Single Family Guarantee portfolio -  its 
exposure to subprime was materially greater. As 
of December 31,2006, Freddie Mac's Single 
Family Guarantee business was exposed to approximately 
$141 billion (or 10 percent of the 
portfolio) in loans the Company internally referred to as "subprime," "otherwise subprime" or 
"subprime-like" and its exposure grew to approximately $244 billion (or 14 percent 
of the 
portfolio) by June 30,2008, 
as the Company sought to win back lost market share by increasing 
its acquisition 
of such loans. 
4. Syron had ultimate authority over the subprime disclosures in Freddie Mac's 
Information Statements and supplements to the Information Statements published between 
March 23,2007 and May 14,2008, and in its Form 10-Q filed with the Commission on August 
6, 2008, and also in speeches he gave or public statements he made in 2007 and 2008. Cook 
spoke at an investor conference on May 17, 2007, 
in which she told investors that Freddie Mac 
had "basically no subprime exposure" and she provided substantial assistance to Syron and 
Freddie 
Mac in making subprime disclosures in the Information Statements and supplements and 
a  Form 10-Q by certifying to the accuracy 
of the disclosures, which related to her area of 
responsibility. Bisenius also certified to the accuracy of the subprime disclosures in certain 
Information Statements and supplements published during the Relevant Period and the Form 10­
Qand thus substantially assisted Syron and Freddie Mac in making the misleading statements in 
these documents; he also substantially assisted Syron and Cook in making oral misstatements 
2 
~. 

about subprime by failing to correct statements in their prepared speeches that he knew misstated 
the Company's subprime exposure. Each defendant made, 
or substantially assisted others in the 
making of, these misleading subprime disclosures at a time when each knew, 
or was reckless in 
not knowing, that the Company was increasing its acquisition 
of higher-risk loans that it 
internally referred to as "subprime," "otherwise subprime" or "subprime-like." 
5. By this conduct, Syron and Cook violated, and Syron, Cook and Bisenius aided 
and abetted violations of, the antifraud and reporting provisions 
ofthe federal securities laws. 
JURISDICTION AND 
VENUE 
6. This Court has jurisdiction over this action pursuant to Section 22(a) of the 
Securities Act 
of 1933 (the "Securities Act") [15 U.S.C. § 77v(a)] and Sections 21(d), 21(e), and 
27 
of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§ 78u(d), 78u(e), 
and 78aa] and 28 
U.S.c. § 1331. 
7. Venue is proper in this Court pursuant to Section 22(a) of the Securities Act 
[15 U~S.C. §77v(a)] and Section 27 of the Exchange Act [15 U.S.c. § 78aa] because certain of 
the acts, practices, transactions and courses of business constituting the violations alleged herein 
occurred within this judicial district. 
8. In connection with the transactions, acts, practices and courses of business alleged 
in this Complaint, Syron, Cook and Bisenius have directly 
or indirectly made use ofthe means or 
instrumentalities 
of interstate commerce, of the mails, or of the facilities of a national securities 
exchange in connection with the transactions, acts, practices, and courses 
of business alleged in 
this Complaint. 
3 


RELEVANT ENTITY 

9. Freddie Mac was, at all times relevant to this Complaint, a  shareholder-owned 
Government Sponsored Enterprise ("GSE") established by the U.S. Congress on July 24, 1970, 
with the passage 
of the Federal Home Loan Mortgage Corporation Act (the "FHLMC Act"), to 
provide a  continuous flow 
of funds for residential mortgages. Freddie Mac performed  this 
function by buying and guaranteeing residential mortgage loans and mortgage-related securities, 
which it  financed 
by issuing mortgage-related securities, debt securities and equity securities. 
Under the FHLMC Act, the Company's securities were "exempt securities," meaning they were 
. exempt from the registration and disclosure requirements of the federal securities laws. On July 
18, 2008, Freddie Mac voluntarily registered its common and preferred stock under Section 
12(g) 
of the Exchange Act by filing a  Form 10 registration statement with the Commission. 
Prior to July 18, 2008, Freddie Mac publicly disseminated annual and quarterly reports 
of its 
financial condition and results 
of operations in Information Statements and Information 
Statement Supplements, which were virtually identical in presentation to annual and quarterly 
reports filed with the Commission by registrants. Since July 18, 2008, Freddie Mac has been 
subject to the reporting requirements 
of the federal securities laws. During the Relevant Period, 
Freddie Mac's common stock was actively traded on the New York Stock Exchange under the 
ticker symbol "FRE." Its principal place 
of business was, and is, in McLean, Virginia. 
1
o. Freddie Mac manages its business through three reportable segments: 
(i) Single Family Guarantee ("Single Family"), 
(ii) Investments, and (iii) Multifamily. 
11. Single Family is Freddie Mac's primary business segment. During the Relevant 
Period, Freddie Mac reported that the size 
of its Single Family business was $1.4 trillion as of 
December 31, 2006, $1.7 trillion as ofDecember 31, 2007 and $1.8 trillion as ofJune 30, 2008. 
4 


12. Through its Single Family business, Freddie Mac purchases residential mortgages 
and mortgage-related securities in the secondary mortgage market and securitizes them 
as 
Freddie Mac mortgage-backed securities, known as Participation Certificates ("PCs"). Freddie 
Mac guarantees the payment 
of principal and interest on the'mortgage loans that underlie these 
PCs 
in exchange for guarantee fees. 
13. During the Relevant Period, Freddie Mac completed at least four preferred stock 
offerings, raising approximately $7.5 billion: (i) pursuant to an Offering Circular dated April 
10, 
2007, it  issued $500 million worth of 5.66 percent non-cumulative perpetual preferred stock, 
(ii) pursuant to 
an Offering Circulated dated July 17, 2007,. it  issued $500 million worth of 6.02 
percent non-cumulative perpetual preferred stock, (iii) pursuant to 
an Offering Circular dated 
September 25, 2007, it  issued $500 million 
of 6.55 percent non-cumulative perpetual preferred 
stock and (iv) pursuant to an Offering Circular dated November 29, 2007, it  issued 
$6 billion 
fixed-to-floating rate non-cumulative perpetual preferred stock. Additionally, in mid-2008, 
Freddie Mac executives attempted to make at least one additional preferred· stock offering 
in the 
amount of$5.5 billion. Throughout the Relevant Period, Freddie Mac also routinely issued debt 
securities. 
14. On September 6, 2008, following mounting losses, Freddie Mac's primary 
regulator, the FHFA, placed it into conservatorship. On September 
7, 2008, FHFA, as 
conservator, adopted a  resolution eliminating the par value of Freddie Mac's common stock, 
increasing the number 
of shares .of Freddie Mac common stock authorized for issuance to four 
billion, preventing Freddie Mac from making any payment to purchase or redeem its capital 
stock or pay any dividends to holders 
of Freddie Mac's common stock, and limiting the voting 
rights 
ofholders ofFreddie Mac's common stock. 
5 


DEFENDANTS 

15. 
Richard F. Syron, age 68, was Chairman of the Board of Directors ("Chairman") 
and Chief Executive Officer ("CEO") 
of Freddie Mac from December 2003 until September 7, 
2008, when Freddie Mac's regulator, the Federal Housing Finance Agency ("FHF A"), placed it 
into 
conservatorship~ Syron' s compensation grew from approximately $14.7 million in 2006 to 
$18.3 million in 2007 -  tied, in part, to the "Touch More Loans" initiative discussed further 
below in Parawaph 45 and 
to quarterly financial reporting. Syron formally ceased to be .an 
employee 
of Freddie Mac on November 7, 2008, and was deemed to have resigned from the 
Board 
ofDirectors, effective as ofthat date. Syron is  a resident ofMassachusetts. 
16. As Chairman and CEO 
ofFreddie Mac, Syron oversaw all three ofFredrlie Mac's 
reportable segments, including Single Family. As Chairman, Syron was a  regular attendee at 
Board meetings and Board committee meetings, including the Board's Mission, Sourcing and 
Technology Committee meetings. As CEO, he chaired a  team that he personally selected from 
the upper echelons 
of executive management called the "SET" or "Senior Executive Team," 
which met periodically to consider Freddie Mac's strategic direction. Syron also regularly 
attended monthly meetings 
of the Enterprise Risk Management Committee (the "ERMC"), 
which was a  committee comprised 
of executives and senior management from Freddie Mac's 
three reportable segments that considered the status 
of credit, market and operational risks, 
among others, to the Freddie Mac enterprise. Syron received monthly materials from the ERMC 
that apprised him 
of the credit, market and operational risks, among others, to the Freddie Mac 
enterprise. Syron also attended meetings 
ofthe ERMC. 
17. Syron had extensive knowledge and experience in housing market-related issues. 
He wrote a  dissertation about the housing market and served in various leadership positions at 
6 

both the Federal Reserve Bank of Boston and the Federal Home Loan Bank ofBoston, including 
President and CEO. Syron was knowledgeable about the housing market and mortgage-related 
risks,.and familiar with the views held by other market participants. 
18. 
Syron regularly received and reviewed drafts 
of the Freddie Mac Information 
Statements and Annual Reports to Stockholders ("Information Statements") and supplements to 
the Information Statements ("Information Statement Supplements") and, once Freddie Mac 
became an SEC-reporting company, drafts 
of Freddie Mac's first Form 10-Q. Syron certified 
Freddie Mac's Information Statements and Supplements published between March 23, 2007 and 
May 14,2008, and Freddie Mac's Form 10-Q filed with the Commission on August 
6, 2008. 
19. 
Patricia L. Cook, age 58, was an officerofFreddie Mac and held several titles, 
including Executive Vice President ("EVP") 
of Investments and Capital Markets and Chief 
Business Officer ("CBO"), from August 2004 through   September 26, 2008. Cook's 
compensation was $4.9 million 
in 2006 and $4.8 million in 2007 -  tied, in part, to the Touch 
More Loans strategy discussed below in Paragraph 
45 and to quarterly financial reporting. Cook 
formally ceased to be an employee 
of the Company on November 17, 2008, approximately two 
months after the Company announced certain management and organizational changes, including 
the elimination 
of her position. Cook isa resident of Washington, D.C. 
20. As EVP 
of Investments and Capital Markets and as CBO, Cook oversaw Single 
Family. Cook attended Board meetings and Board committee meetings, including the Board's 
Mission, Sourcing and Technology Committee meetings. Cook was one 
ofthe senior executives 
who served on Syron's SET. She also attended or, on occasion, sent representatives on her 
behalf, to the monthly ERMC meetings. She received materials from the ERMC that apprised 
her 
of the credit, market and operational risks, among others, to the Freddie Mac enterprise~ As 
7 


the senior executive in charge of the Single Family business, Cook was knowledgeable about 
Freddie Mac's acquisitions and the perfonnance of Freddie Mac's high risk loan portfolio, 
including certain loans the Company internally considered to be subprime. 
21. The Touch More Loans strategy, discussed below in Paragraph 45, also played a 
role in Cook's compensation. In 2006, Cook's target bonus was $2 million and her target long­
tenn equity award for perfonnance was $2.4 million. Cook received a bonus 
of $2.3 million, or 
$300,000 in excess 
ofher target, and a  long-tenn equity award equating to $2.763 million, or 
$363,000 greater than her target, in part due to Cook's Touch More Loans strategy. In 2007, 
Cook received a  bonus 
of $1.4 million dollars plus a  supplemental bonus of $200,000 with a 
three-year vesting schedule, again in part because 
ofTouch More Loans. 
22. Cook was responsible for ensuring that Single Family's public disclosures were 
accurate. Cook was considered 
an expert on credit risk within Freddie Mac. Furthennore, 
during the Relevant Period, the Disclosure Committee consulted Cook at least once regarding the 
Company's public disclosures concerning subprime. 
23. Cook signed sub-certifications directed to Syron and other senior executives for 
each Freddie Mac Infonnation Statement and Infonnation Statement Supplement published 
between March 23, 2007 and May 14, 2008, and for Freddie Mac;s Fonn lO-Q filed with the 
Commission on August 6, 2008. Each 
of Cook's sub-certifications covered the Company's 
subprime disclosures. 
24. 
Donald J. Bisenius, age 53, was employed by Freddie Mac from 1992 through 
April 
1, 2011, and held a  number of titles, including Senior Vice President ("SVP") of Credit 
Policy and Portfolio Management from November2003 to April 2008, SVP 
of Single Family 
8 


Credit Guarantee from May 2008 to May 2009 and, most recently, EVP of Single Family Credit 
Guarantee. Bisenius is a resident 
ofVirginia. 
25. In 2007 and 2008, Bisenius reported directly to Cook and was the senior-most 
officer for credit risk in Single Family during the periods covered by the Information Statement 
and Information Statement Supplements for the periods ended December 31, 2006, March 
31 
and June 30, 2007, the Information Statement Supplement for the period ended March 31, 2008, 
and the Form 10-Q for the period ended June 30, 2008. As the senior-most officer for credit risk 
in Single Family, Bisenius was recognized within Freddie Mac as an expert on single-family 
mortgages and on credit risk and was responsible for developing credit policies for Freddie 
Mac's guarantee ofloans. 
26. Between approximately March 2007 and April 2008, Bisenius also focused on 
certain "special projects," including a "Model Subprime Offering" discussed below in Paragraph 
61, aimed at borrowers previously serviced by lenders who self-identified as subprime 
originators. 
27. Bisenius signed sub-certifications for each Freddie Mac Information Statement 
and Information Statement Supplement published between March 23, 2007, and August 30, 
2007, Freddie Mac's Information Statement Supplement published on May 14, '2008, and 
Freddie Mac's Form 10-Q filed with the Commission on August 6, 2008. Each ofBisenius' sub­
certifications covered the Company's subprime disclosures. Bisenius also served on the 
Disclosure Committee that considered Freddie Mac's Information Statement Supplement for the 
period ended March 31, 2008, and its Form 10-Q for the period ended June 30, 2008. 
9 


Background 
28. As described below, in or about June 2006, Freddie Mac began to quantify in its 
public disclosures the approximate amount 
of exposure to subprime loans in the Single Family 
guarantee business 
.. During the Relevant Period, Freddie Mac provided various such estimates ­
ranging between $2 and $6 billion, or OJ to 0.2 percent 
of its Single Family guarantee business. 
In fact, during this period, Single Family had exposure to between approximately $140 billion 
and $244 billion 
of loans that Freddie Mac internally recognized were "subprime," "otherwise 
subprime" or "subprime-like." The misleading statements identified herein all relate to attempts 
by Freddie Mac and its senior executives, including defendants, to minimize and mislead 
investors concerning the exposure 
of Freddie Mac's Single Family guarantee business to 
subprime loans. 
29. Beginning with its Information Statement for the fiscal year ended December 31, 
2003 (the "2003 Information Statement"), and continuing through the Relevant Period, Freddie 
Mac published tables 
of credit risk characteristics for Single Family loans (the "Credit Risk 
Tables"). Those Credit Risk Tables contain information describing risk characteristics such 
as 
original loan-to-value ("LTV") ratio bands,product type, property type, occupancy type, FICO 
credit score bands,  loan purpose, geographic concentration, and origination year. The Credit 
Risk Tables did not quantify or otherwise provide estimates 
of Freddie Mac's exposure to 
subprime loans. 
30. In or about March 2007, as investor interest in the credit risk associated with 
subprimeloans continued to increase, Freddie Mac began to provide narrative disclosure 
describing and estimating the exposure 
of its Single Family guarantee business to subprime 
10 


loans. These disclosures contained blatantly false and misleading statements for the reasons 
described below. 
Since the 1990s, Freddie Mac Internally Categorized Loans 

As Subprime Or Subprime-Like As Part OfIts Loan Acquisition Programs 

AndIn Connection With Monitoring The Risk OfIts Portfolios 

31. As part of its loan acquisition and securitization  process in the Single Family 
credit guarantee portfolio, Freddie Mac provided mortgage loan originators with a  series 
of 
mortgage underwriting standards and/or automated underwriting software tools, including, since 
at least 1995, its proprietary automated underwriting system ("ADS") called "Loan Prospector." 
32. Loan Prospector generated a credit risk classification for each loan and was used 
to determine the terms on which a loan could be sold to Freddie Mac, including whether a loan 
could 
be sold to Freddie Mac without certain representations and warranties or without 
additional cost. 
33. During the Relevant Period, Loan Prospector generated a score that estimated the 
risk 
ofdefault for each loan. The scores, in tum, were grouped into six bands or "grades," which 
roughly corresponded to the level 
of anticipated risk: A+, AI, A2, A3,CI or C2. These grades 
were visible to Freddie Mac but not to mortgage loan originators or the public. Loans falling 
into the first four grades (A+, 
AI, A2 and A3) were designated "Accept Loans." Loans falling 
into the bottom two grades (CI and C2) were designated "Caution Loans." 
34. 
A loan designated as an Accept Loan permitted automated underwriting, reduced 
documentation and generally did not require originators to make special representations and 
warranties regarding the credit quality 
of the loan because Loan Prospector had already 
determined the loan was creditworthy. 
35. By contrast, Loan Prospector's designation 
of a loan as a Caution Loan meant that 
the system had identified concerns about the loan's creditworthiness. Originators were required 
11 


manually to underwrite Caution Loans, produce additional documentation regarding the 
borrower's creditworthiness, and make special representations and warranties regarding the 
credit quality 
of the loan. Caution Loans had mUltiple higher risk characteristics, such as high 
LTV ratios, borrowers with lower FICO scores, unusual property types or high debt-to-income 
ratios, and were recognized within Freddie Mac 
as loans that had a high risk of default relative to 
Accept Loans. Internally at Freddie Mac, Caution Loans were considered to be equivalent to 
sUbprime. 
36. On October 
8, 1997, Freddie Mac publicly announced the roll-out of its "A-minus 
Program" at the Mortgage Bankers Association's 
<l:nnual meeting in New York .. "A-minus" was 
a term commonly used in the marketplace to refer to subprime loans. The next day, the 
American 
Banker published an article reporting on Freddie Mac's announcement and observed that 
"Freddie Mac 
is diving into subprime lending, ending months ofspeculation over how deeply the 
agency would go into the burgeoning market." Under the A-minus Program, Caution Loans that 
received a score 
of C 1 in Loan Prospector could be sold to Freddie Mac on the same terms as an 
Accept Loan with the payment of an additional fee by the seller. As noted by the American 
Banker 
article, the A-minus Program was publicly perceived as expanding Freddie Mac's 
exposure to 
sUbprime loans. 
37. Sales and marketing materials prepared for Single Family as part 
ofthe roll-out of 
the A-minus Program advised the Company's sales force that "Freddie Mac is expanding the 
range 
of loans it will purchase, including many loans in the A-minus sector of the market. Now 
lenders can use  Loan Prospector to provide less costly, more efficient financing to borrowers 
with weaker credit." In describing the A-minus sector 
of the housing market, the sales and 
12 


marketing materials stated that "A-minus loans account for approximately 50 percent of 
subprime loans." 
38. In or about November 1998, in connection with the A-minus Program, Freddie 
Mac revised its Credit PoliCy 
Book as it related to the broader credit risk parameters and 
processes under which Freddie Mac was willing to guarantee loans in Single Family. The 
memorandum authorizing these revisions described mortgages eligible for the A-minus Program 
as 
"[m ]ortgages that generally comprise the first and second tier of subprime lender risk grades" 
and "mortgages generally includ[ing] 54% to 56% 
ofthe subprime market." Mortgage loans that 
received a 
Cl rating in Loan Prospector were described as having a credit quality of "A-minus," 
and those that received 
a C2 rating in Loan Prospector were described as having a credit quality 
of"sub prime." Bisenius signed and approved the revisions to the Credit Policy Book. 
39. 
In or about 1999, at the request' of Bisenius, Freddie Mac developed an 
econometric model called "Segmentor;" which enhanced Loan Prospector's ability to identify 
subprime loans prior to Freddie Mac guaranteeing those loans. The model scored mortgage 
loans on a  variety 
of credit risk characteristics, such as debt ratio, FICOs, and time since most 
recent foreclosure, and generated a  "subprime score." 
If the Segmentor "subprime score" fell 
below certain thresholds or had certain characteristics such as a  high debt-to-income ratio, the 
loan received an automatic rating 
ofCl or C2 in Loan Prospector. 
40. Loan Prospector developed and evolved over time, but, the 
intem~l view that 
Caution Loans (Cl and C2)were synonymous with subprime or were "subprime-like" did not 
change. 
41. Freddie Mac's exposure to Caution 
Loansup through the Relevant Period steadily 
rose. As 
ofthe end of2004, Freddie Mac guaranteed the principal and interest on Caution Loans 
13 


in the amount of approximately $70 billion. From the first quarter of 2005 through the second 
quarter 
of 2008, Freddie Mac increased its total exposure to Caution Loans from approximately 
$73 billion to $233 billion, with the largest annual increase betWeen the fourth quarter of 2006 
(approximately $138 billion) and the fourth quarter 
of 2007 (approximately $216 billion). While 
Caution Loans were internally referred to as subprime, they were not disclosed publicly 
as part 
of the Company's Single Family subprime exposure. 
Freddie 
Mac Acquires Increasingly Risky Loans to Maintain Market Share 
42~ In or about the early 2000s, Freddie Mac and the Federal National Mortgage 
Association ("Fannie Mae") began to lose market share in mortgage loan securitizations to new 
competitors, including Wall Street banks. Mortgage originations had shifted from traditional 
fixed-rate loans to higher risk loan products with features such 
as adjustable rates ("ARMs"), 
interest-only payments, and redu,ced documentation requirements. 
43. By 2005, the Freddie Mac and Fannie Mae combined share 
of the market for 
mortgage securitizations had fallen to approximately 
42 percent from a high of nearly 60 percent 
in 2000. Within that shrinking GSE share of the market, Freddie Mac also had been steadily 
losing market share to Fannie Mae. Freddie Mac responded to this loss 
ofmarket share by 
broadening its credit risk parameters to purchase and guarantee increasingly risky mortgages 
in 
its Single Family guarantee portfolio between approximately 2004 and 2007. 
44. For example, 
in or abortt late 2004, despite contrary advice from the Company's 
senior credit risk experts, Syron authorized Freddie Mac's continued purchases 
of a particularly 
risky type 
of mortgage commonly referred to in the industry as a "No Income, No Asset" loan or 
"NINA." NINAs were widely. considered to be particularly risky because  they did not require 
any verification 
of a  borrower's income or assets. Freddie Mac's senior credit risk officers 
14 


advocated to Syron that the Company stop guaranteeing NINA mortgages, in part, because ofthe 
high risk 
of default associated with such mortgages within their first year and because of 
perceived reputation risk to the Company. Syron rejected the advice, in part due to his desire to 
improve Freddie Mac's market share. 
45. Another example 
of increased risk taking occurred in or about 2005, when the 
Company embarked on a business strategy called Touch More Loans. Touch More Loans was 
designed to gain back lost market share by granting exceptions 
to Freddie Mac's existing credit 
policy to permit the acquisitiori and guarantee 
of riskier loans that were being originated in the 
marketplace. Cook led the Touch More Loans strategy. 
46. Coinciding 
with the introduction 
of Touch More Loans, the Company embarked 
on two additional initiatives to expand market share: 
a. First, in February 2005, Freddie Mac introduced a new residential 
mortgage product called Home Possible, which was geared to low-to-moderate income 
b<?rrowers (such as teachers, law enforcement personnel, healthcare workers and the military) 
and permitted lower down payments or higher loan-to-value ratios, among other higher credit 
risk characteristics, than had previously been allowed. Loans acquired through Home Possible 
were internally considered to be "subprime-like." 
b.· Second, on August 
17, 2005, Freddie Mac internally issued a  policy 
statement authorizing increased guarantees 
of a Fannie Mae proprietary product called 
"Expanded Approval" (or "EA") loans. As 
of December 2004, Freddie Mac guaranteed the 
principal and interest on EA loans in the approximate amount 
of $69 million. From the first 
quarter 
of 2005 through the second quarter of 2008, Freddie Mac increased its total exposure to 
EA loans from approximately $1 billion to $11 billion (with the largest increase of 
15 


approximately. $8 billion coming between the fourth quarter of 2006 and the fourth quarter of 
2007). EA loans were considered to have, at best, credit risk equivalent to A-minus loans and 
were internally described in this policy statement 
as (1) "appear[ing] to be subprime in nature[;]" 
and (2) "high risk 
... since performance compares to subprime products." In fact, on August 20, 
2007, in an email that was sent to Cook and others, Bisenius described EA loans 
as "clearly 
subprime." 
47. From 2005 forward, Freddie Mac also substantially increased its exposure to 
loans from a subprime lending division 
of Countrywide Financial Corporation ("Countrywide") 
known 
as Full Spectrum Lending. Between 1999 and 2004, Freddie Mac acquired loans from 
Countrywide's Full Spectrum Lending division in the aggregate amount of approximately $279 
million. From 2005 through 2008, Freddie Mac acquired approximately $12 billion 
of Full 
Spectrum Lending loans (with the largest increase between 2006 (approximately 
$3 billion) and 
2007 (approximately $6 billion)). 
48. The approximate aggregate amount (in billions 
of u.S. dollars), measured by 
unpaid principal balance, 
of C1, C2 and EA loans in Single Family at the end of the following 
periods was 
as follows: 
$39 
$35 $74 
$75 $1,220 
6% 
16 


$42 $37 $79 $80 
$1,244 6% 
$47 $39 $86 $87 $1,274 
7% 
$53 
$42 
$95 $97 $1,318 7% 
$60 
$47 
$107 
$109 $1,360 8% 
$64 $50 $114 $116 $1,387 
8% 
$71 $54 $125 $127 $1,428 
9% 
$78 $60 $138 $141 $1,467 
10% 
$89 
$67 $156 $160 $1,528 
10% 
$100 $77 $177 $183 $1,586 12% 
$110 
$88 $198 $206 
$1,642 13% 
$118 
$98 
$216 $227 $1,692 
13% 
$123 
$104 $227 $238 $1,739 
14% 
$127 
$106 $233 $244 
$1,784 14% 
17 


Freddie Mac's Acquisition and Guarantee Of 

,Loans From Other AUSs Increases its Subprime Exposure 

49. Beginning in or about 2004, in addition to purchasing and guaranteeing the 
payment 
of principal and interest on loans that had been underwritten using Loan Prospector, 
Freddie Mac increasingly purchased and guaranteed mortgage loans underwritten through other 
proprietary AUSs. For example, Freddie Mac purchased and guaranteed mortgage loans 
underwritten using AUSs such as Fannie Mae's Desktop Underwriter and Countrywide's 
CLUES. 
50. To assess the relative risk 
ofmortgages underwritten through other AUSs, Freddie 
Mac used an internal modeling system called LP Emulator to approximate how the loans would 
have scored under Loan Prospector. LP Emulator used the same scoring metric as Loan 
. . 
Prospector -  Accept Loans (A+, AI, A2 and A3) and Caution Loans (Cl and C2) -  but, LP 
Emulator was run on a  loan after Freddie Mac had agreed to guarantee the loan. Using LP, 
Emulator, Freddie Mac could identify a loan that would have been designated as a Caution Loan 
if underWritten through Loan Prospector, but had instead been guaranteed on terms equivalent to 
an Accept Loan after being underwritten through another AUS. Loans falling into this category 
were deemed to have a  "defect." Beginning in 2004, Freddie Mac tracked the "defect rate" 
of 
loans acquired throughotherAUSs. 
51. In the second quarter of2003, before Freddie Mac increased its purchases through 
AUSs other than Loan Prospector, Freddie Mac's aggregate defect rate was approximately 1 
percent. Freddie Mac's purchase and guarantee 
of mortgages underwritten through other AUSs 
increased to the' point where it was acquiring fewer loans through Loan Prospector 
(approximately 27 percent) than through Fannie Mae's Desktop Underwriter (approximately 
31 
percent). The defect rate rose dramatically, and in August 2007, the aggregate defect rate 
18 


reached a  historical high of approximately 22 percent Approximately 22 percent of the loans 
Freddie Mac purchased and guaranteed that were underwritten through other AUSs therefore met 
the Freddie Mac internal definition 
of sUbprime. 
Defendants Were Aware ofSubprime Exposure in Single Familv 
52. On May 25, 2006, Cook attended a  meeting of the Board's Finance and Capital 
Deployment Committee. Prior to that meeting, she received a  memorandum authored by the 
Company's then-Chief Enterprise Risk Officer, highlighting for her and the other attendees that 
"[t]he credit parameters 
of new single-family purchases continue to decline. In order to support 
our business strategies to increase customer focus, build market share and meet affordable goals, 
we continue to expand credit policies and increase purchases 
ofhigher-risk products." 
53. Six days later, on May 31, 2006, Syron and Cook attended a  meeting 
of the 
Board's Mission, Sourcing and Technology Committee,. where it was highlighted that the Touch 
More Loans strategy had resulted in significantly greater credit risk to the Company. 
Specifically, a  presentation made by a  senior credit risk officer. stated that, pursuant to Touch 
More 
Loans, Freddie Mac was "expanding our appetite" for, among other things, risk layering 
of 
lower FICOs, higher LTV's, other AUSs, and other high-risk loans. To the extent it  was not 
already clear to them prior to the meeting, Syron and Cook also were infomied that the Company 
was loosening its underwriting standards through its implementation 
of the Touch More Loans 
strategy by, among other things, increasing exceptions to the Company's existing credit 
policy­
exceptions that had almost tripled between 2004 and 2005, from 286 in 2004 to 770 in 2005. 
54. . On November 30, 2006, Bisenius' staff informed  him that loans sold to Freddie 
Mac through Fannie Mae's Desktop Underwriter were contributing disproportionately to the 
Company's increasing defect rate and included loans that were equivalent to subprime. 
Specifically, Bisenius' staff told him and others that loans from Fannie Mae's Desktop 
19 


Underwriter "have a much higher percent of defect loans, loans that are subprime-like, loans that 
have very low FICOs" in referring to loans that contributed to the increasing "defect rate" at the 
Company. 
55. On December 7, 2006, Syron and Cook attended a  meeting 
of the Mission; 
Sourcing and Technology Committee 
of the Board of Directors. Attached toa presentation 
prepared for that meeting was a glossary 
ofterms, the purpose of which was to inform the Board 
of how management used certain terms. The glossary defined "Subprime Mortgages" as follows: 
There 
is no longer a clear-cut distinction between prime and 
subprime mortgages as the mortgage market has evolved to 
provide for mortgage credit to a  full range 
of borrowers with a 
variety 
of products and processes. Subprime mortgages generally 
are mortgages that involve elevated credit risk. Whereas prime 
loans are typically made to borrowers who have a  strong credit 
history and can demonstrate a capacity to repay their loans, 
subprime loans are typically made 
to borrowers who have a 
blemished or weak credit history and/or a  weaker capacity to 
repay. 
Ultimately, during the Relevant Period, the Company's public subprime disclosures were 
inconsistent with how management characterized its use 
of the term "subprime" for its own 
Board members. 
56. Beginning on or about January 18, 2007, Freddie Mac's ERMC began 
to report 
on Freddie Mac's exposure to subprime loans. Attendees of the January 18 ERMC meeting­
including Syron and Cook -  were told that "[l]oan level ri~k grades are blurred as capital retreats 
in [the] subprime market, increasing the likelihood that we· are already purchasing subprime 
loans under existing acquisition 
programs." Accordingly, this presentation reinforced 
to 
attendees of this meeting that it  was likely that Freddie Mac already was purchasing loans with 
credit risk characteristics similar 
to loans originated by self-identified subprime originators, and 
that market participants would consider to be subprime loans. The ERMC met monthly after this 
20 


and Syron and Cook generally attended ERMC meetings. Going forward, the ERMC reports 
consistently contained this same warning. Syron typically received the ERMC reports 
in 
advance ofthe meetings and generally reviewed them prior to the meetings. 
57. On February 6 and 
7, 2007, Syron gathered his Senior Executive Team for a two-
day 
offsite planning meeting in Florida to discuss Freddie Mac's strategic direction. Cook 
attended as a  member 
of the SET, as did Bisenius (who was invited even though he was not 
formally a member 
of the SET). At least one presentation was devoted to Freddie Mac's role in 
the subprime market. That presentation highlighted for attendees· the following regarding 
Freddie Mac's exposure to subprime: 
• 	Freddie Mac "already purchase[s] subprime-like loans 
... but with 
considerably lower fees[,]" which attendees generally understood meant 
that Freddie Mac was purchasing loans with credit risk and expected 
default rates similar to the loans originated by a small handful 
of 
institutions that self-identified as subprime originators. 
• 	The "[w]orst 10% 
of [the Single Family] Flow Business" -which 
comprised approximately 70 percent 
of Single Family purchases in 2006 ­
were "subprime-like loans." 
• 	Freddie Mac was purchasing greater percentages 
of"risk layer[ed]" loans, 
defined as loans consisting oftotal LTV greater than 
90 percent and FICO 
scores less than 680, which was "leading to more 'Cautions'" and a higher 
"[ d]efect rate." 
• 	'''Caution' loans have greater default costs 
... resulting in higher expected 
losses[.]" 
21 


58. On February 17, 2007, Syron received and responded to an email from Bisenius 
regarding a new "Subprime Project." Bisenius told Syron and others that 
an expanded role in the 
subprime market only made sense 
if Freddie Mac was adequately compensated for the risk, and 
reminded Syron and others that there were certain categories 
of loans, including "free cautions," 
I 	. 
that the Company already purchased and did not receive adequate compensation for the risk . 
. 59. 	On March 2 and 
3, 2007, Syron, Cook and Bisenius attended a two-day Board of 
Directors meeting, a  significant portion of which was dedicated to the Company's strategic 
direction 
in subprime. Cook was one of the presenters at the Board meeting and she, along with 
the then:..Chief Operating Officer, presented similar information to the Board 
as contained in the 
February 6 and 7 offsite meeting. Specifically, Cook and the then-Chief Operating Officer led a 
discussion at the meeting concerning a  slide 
in which the "worst 10% of [Freddie Mac's] Flow 
Business" was listed 
as an example of "subprime-like loans" the Company already purchased, 
and 
in which they conveyed: 
• 	"We already purchase subprime-like loans to help achieve our HUD goals 
... 
[b Jut we receive considerably lower fees than subprime loans would fetch in the 
market." 
• 	. "Some 
ofour current purchases have subprime-like risk[.]" 
• 	"[F]ixed-rate subprime doesn't 
look all that different than the bottom of our 
purchases, with returns five to six times as great, not universal for all subprime." 
60. 	
In addition to receiving at least the SET and Board materials referred to above in 
.  Paragraphs 57 and 59 which highlighted, among other things, that a  material portion 	of the 
Single Family business was "subprime-like," and monthly ERMC reports which repeatedly 
warned 
of the increasing risk that Freddie Mac was buying subprime loans (and showed data 
22 


suggesting that the credit risk of the principal and interest of loans to be securitized by Freddie 
Mac was increasing to historic  proportions), Syron also was aware at least as early as February 
17,2007 of Freddie Mac's efforts to develop a model subprimeoffering targeted at customers of 
self-identified sUbprime originators. 
61. 
By at least early April 2007, Bisenius transitioned into a new role at Freddie Mac, 
where he was placed in charge 
of developing a Model Subprime Offering that was later publicly 
known as a  product called "Freddie Mac SafeStep Mortgages," to give subprime borrowers a 
more consumer-friendly mortgage option. 
62. Although the Model Subprime Offering purportedly had been developed as an 
alternative 
to subprime products, Freddie Mac personnel, including Syron, Cook and Bisenius, 
recognized that it  actually competed with existing programs that Freddie Mac had internally 
recognized as "subprime," "otherwise subprime," or "subprime-like." 
63. On April 12, 2007, Bisenius proposed abolishing Freddie Mac's A-minus 
Program -  which was long-recognized as subprime 
~ "so as to not canabalize [sic] our [Model 
Subprime Offering]." 
64. 
By mid-April 2007, Bisenius also knew that the credit characteristics of loans to 
be guaranteed under the Model Subprime Offering were similar to those 
of other existing Freddie 
Mac programs in addition to the A-minus Program, such as Home Possible and Fannie Mae's EA 
prograin, which he was well aware internally were perceived as programs that exposed Freddie 
Mac to subprime or subprime-like loans -as he had used those same descriptions for those 
programs. 
65. Bisenius regularly briefed Cook on the Model Subprime Offering. Cook 
requested these briefmgs to discuss the role 
of the Company's existing Single Family guarantee 
23 


programs relative to the Model Subprime Offering. At a briefing on April 20, 2007, highlighted· 
that there were "alignment" issues between the Model Subprime Offering 
loan:s and Freddie 
Mac's existing loan programs. 
66. On May 
16, 2007, Bisenius sent an e-mail commenting on a set of 
recommendations regarding certain of Freddie Mac's current offerings as related to the Model 
Subprime Offering. 
In the email, Bisenius observed that the recommendations did not "address 
DU approves or Proprietary AUS approves that 
we think are subprime (ie., [sic] they would 
score Caution in LP) and therefore might compete with our model offering." 
67. On June 
7, 2007, Cook and Bisenius attended a meeting of the Board's Mission, 
SOiIrcing and Technology Committee, where it was conveyed that: 
• 	Certain   higher risk loans sold to Freddie Mac through other AUSs were 
equivalent to subprime. 
it 	Freddie Mac-securitized loans obtained through Fannie Mae's Desktop 
Underwriter had a  "higher share 
of low FICO loans and subprime-like loans" 
relative to other AUS loans. 
• 	Loans sold to Freddie Mac through Countrywide's CLUES were "particularly 
volatile" and, 
in particular, of those loans sourced through CLUES that were later 
scored by Freddie Mac's 
LP Emulator as "Caution," (called "defect loans" for 
their contributions to the "defect rate"), a  high proportion 
of such loans were 
"subprime 
in nature." 
68. On or about June 
11, 2007, Cook and others received an "Executive Summary" 
sponsored by Bisenius, that stated that the Model Subprime Offering would compete with 
existing loans the Company acquired and guaranteed such 
as "[Freddie Mac's] affordable 
24 


offerings like Home Possible and [Fannie Mae's] MyCommunityMortgage, as well as our LP 
Loan Prospector A-minus offering and [Fannie Mae's] newly revamped EA program." The 
Executive Summary also highlighted that "[ s ]ubprime mortgages are not considered unique 
in 
the industry. An analysis of Freddie Mac's existing products indicates our current A-minus 
offering has credit risk and product parameters (business terms) that match, and in some cases, 
are broader than those outlined 
in the  proposed model Subprime offering." Cook attended the 
meeting 
ofthe New Products Committee where this Executive Summary was discussed. 
69. 
At the September 25,2007 ERMC  meeting, both Syron and Cook were told that 
the defect rate 
of purchases, which had been steadily rising, had increased from approximately 
13 percent at the end of June 2007, to 19 percent in July 2007, to approximately 22 percent in 
August 2007. The presentation highlighted for Syron and Cook that principal drivers of the 
defect rate were low FICOs and high LTVs. Syron and Cook were presented with similar facts 
at the October 23, 2007 ERMC meeting. 
70. Additionally, on September 26, 2007, Cook received a  memorandum describing 
how the Model Subprime Offering would be positioned for marketing purposes. The 
memorandum noted that the Model Subprime Offering was consistent with Freddie Mac's 
"longer term corporate 'touch more loans' strategy to expand into adjacent markets" and that the 
offering would replace Freddie Mac's A-minus loan 
program.­
71. On November 27,2007, the ERMC distributed a packet of materials to Syron and 
Cook, among others. Although no meeting took place, the materials further informed Syron and 
Cook 
of the stresses on Single Family as a result of Freddie Mac's acquisition of riskier loans. 
Specifically, the materials highlighted that the "2007 book performance is worse than in 2006, 
both exhibiting much higher serious delinquency rates than other book years;" that expected 
25 


default costs for October 2007 "are 76% higher than in 2006;" and that the defect rate had risen 
to approximately 20 percent. 
72. 
On December 18, 2007, Syron and Cook attended an ERMC meeting, which 
highlighted for them the deterioration 
of credit quality for the largest portion of Freddie Mac's 
Single Family guarantee portfolio. According to the report used at that meeting, the defect rate 
for the third quarter of 2007 had increased to approximately 20 percent, up from approximately 
16 percent in the second quarter of 2007 and approximately 13 percent in the first quarter of 
2007. Similar facts were highlighted for Syron and Cook at meetings of the ERMC on January 
23,2008 
73. On January 23,2008, Syron and Cook attended another ERMC meeting,  during 
which they were told that the defect rate on the largest part 
of the business was at approximately 
20 percent in November, still at historically high levels. Syron and Cook also were told that EA 
loans accounted for approximately 19 percent 
of expected default costs in Single Family. 
Similar trends were highlighted for Syron and Cook at ERMC meetings on February 19,2008, 
March 25, 2008 and April 29, 2008 
Svron, Cook and Bisenius Were Responsible (or Freddie Mac's Disclosures 
74. Syron, Cook and Bisenius each made, or aided and abetted Freddie Mac or each 
other 
in making, false and misleading credit risk disclosures regarding sUbprime loans in the· 
Company's Single Family guarantee portfolio 
as a result of their authority over, or knowing and 
substantial assistance in, such disclosures. 
75. As CEO 
of Freddie Mac, Syron certified the Information Statement and Annual 
Report to Stockholders for the Fiscal Year Ended December 31, 2006 (the "2006 Information 
Statement"), the Financial Report for the Three and Six months Ended June 30, 2007 (the "2Q07 
Infonnation Statement Supplement"), the Financial Report for the Three and Nine Months Ended 
26 


September 30, 2007 (the "3Q07 Information Statement Supplement"), the Information Statement 
and Annual Report to Stockholders for the Fiscal Year Ended December 31, 2007 (the "2007 
Information Statement"), the Financial Report for the Three Months Ended March 31, 2008 (the 
"IQ08 Information Statement Supplement"), and the Form 10-Q for the Quarterly Period Ended 
June 30, 2008 (the "2Q08 Form 
I O-Q"). The certifications stated, among other things: 
• 	"Based on my knowledge, this [Report] does not contain any untrue statement 
of 
a  material fact or omit to state a  material fact necessary to make the statements 
made, in light 
of the circumstances under which such statements were made, not 
misleading with respect 
to ~he period covered by this [Report.]" 
• 	"Based on my knowledge, the consolidated financial statements, and other 
financial information included in this [Report], fairly present 
in all material 
respects the financial condition, results of operations and cash flows of Freddie 
Mac as of, and for, the periods presented 
in this [Report]." 
76. . Cook sub-certified the 2006 Information Statement, the 2Q07 Information 
Statement Supplement, the 3Q07 Information Statement Supplement, the 2007 Information 
Statement, the lQ08Information Statement Supplement, and 2Q08 Form 10-Q. Bisenius sub-
certified the 
2006 Information Statement, the 2Q07 Information Statement Supplement and the 
2Q08 Form 10-Q. Those sub-certifications stated, among other things: 
• 	"Based upon my role and responsibilities, I  have reviewed the appropriate 
sections 
ofthe [Report]." 
• 	"I have consulted with such members 
of my staff and others whom I  thought 
should be consulted in connection with my execution 
ofthis attestation." 
• 	"Based upon my role and responsibilities, but limited 
in all respects to the matters 
that come to my attention in fulfilling my responsibilities as [CBO (Cook) or SVP 
for Credit Policy (Bisenius)], I  hereby certify to the best 
of my knowledge and 
belief that:" 
• 	"The [Report] does not contain any untrue statement 
of a material fact or omit to 
state a  inaterial fact necessary to make the statements made, in light 
of the 
circumstances under which such statements were made, to not be misleading." 
• 	"The financial statements and other financial information included in the [Report] 
fairly present, 
in all material respects, the financial condition and results of 
27 


operations, and cash flows of the Company as of and for the periods presented in 
the [Report]." 
77. Cook and Bisenius each sub-certified to the accuracy 
of Freddie Mac's subprime 
disclosures 
in those Information Statements and Information Statement Supplements described 
above in Paragraph 76 based upon their respective roles and responsibilities at the Company. 
78. As EVP for Investments and Capital Markets and CBO, during the Relevant 
Period, Cook specifically  had responsibility over the Company's Single Family business, 
including the Company's subprime loan exposure 
as it related to the credit risks associated with 
that business. 
79. As 
SVP 
of Credit Policy' and Portfolio Management and SVP of Single Family 
Credit Guarantee, during a portion 
ofthe Relevant Period, Bisenius had direct responsibility over 
the credit risks, including subprime loan exposure, associated with the Single Family business. 
During that portion 
of the Relevant Period that Bisenius was working on "special projects" for 
Cook, including   the Model Subprime Offering, Bisenius continued to carry on certain 
responsibilities 
as the SVP for Credit Policy and Portfolio Management, and sub-certified to 
those Information Statements and Information Statement Supplements described above 
in 
Paragraph 76. In addition to sub-certifying these disclosures, Bisenius served on the Disclosure 
Committee that considered the 2Q08 Form 10-Q. 
80. Given their respective roles and responsibilities and the importance 
of the sub-
certifications to the Company's disclosure  process, Cook and Bisenius substantially assisted 
in 
the making of the Company's false and misleading statements by validating the accuracy of the 
Company's subprime disclosures, which they knew or were reckless in not knowing were false. 
28 


.;.. '-":-::.:......-:. ::..::,_: -~ 
" ...',. _. ___ ., .... ~~._ ____ ... "'~ :·_·:_.~_~_:_v 
Freddie Mac's Subprime Disclosures 
81. On June 28, 2006, in its Infonnation Statement and Annual Report to 
Stockholders for the fiscal year end December 31, 2005 (the "2005 Infonnation Statement"), 
Freddie Mac publicly quantified for the first time the exposure 
of its Single· Family portfolio to 
subprime loans. The Company represented that: "At December 31, 2005 and 2004; we 
guaranteed $2.3 billion and $4.5 billion 
of securities backed by subprime mortgages which 
constituted less than one percent 
ofour Total mortgage portfolio, respectively." 
82. The Company also noted that it participated 
in thesubprime segment in two other 
ways: (i) "our Retained portfolio makes investments in non-Freddie Mac mortgage-related 
securities that were originated 
in this market segment" and (ii) ''we made investments through 
our Retained Portfolio 
in some of the structured securities we issue with underlying collateral 
that 
is subprime." 
83. During the Relevant Period, Freddie Mac continued to make public disclosure 
of 
its Single Family subprime exposure. However, the disclosures during the Relevant Period were 
consistently materially false and misleading. 
Year-End 2006 
84. On March 23, 2007, in its 2006 Infonnation Statement, Freddie Mac disclosed the 
following regarding it subprime exposure 
in Single Family: 
Participants in the mortgage market often characterize loans based 
upon their overall credit quality at the time 
of origination, 
generally considering them to be prime 
or subprime. There is no 
universally accepted definition 
of subprime. Thesubprime 
segment of the mortgage market  primarily serves borrowers with 
poorer credit payment histories and such loans typically have a mix 
of credit characteristics that indicate a higher likelihood of default 
and higher loss severities than prime loans. Such characteristics 
might include a  combination 
of high loan-to-value ratios, low 
FICO scores or originations using lower underwriting standards 
such as limited or no documentation 
of a borrower's income. The 
29 


subprime market helps certain borrowers by increasing the 
availability 
ofmortgage credit. 
While we do .not characterize the single-family loans underlying 
the PCs and Structured Securities 
in our credit guarantee portfolio 
as either prime or subprime,·we believe that, based on lender-type, 
underwriting practice 
and product structure, the number of loans 
underlying these securities that are subprime 
is not significant. 
Also included in our credit guarantee portfolio are  Structured 
Securities backed by non-agency mortgage-related securities where 
the underlying collateral was identified as being subprime by the 
original issuer. At December 31, 2006 and 2005, the Structured 
Securities backed by subprime mortgages constituted 
approximately 
0.1 percent and 0.2 percent, respectively of our 
credit guarantee portfolio. 
The 
2006 Information Statement also disclosed that Freddie Mac held, at December 31, 2006 and 
2005, 
in its Retained Portfolio -  which is distinct from the Single Family guarantee portfolio ­
. "approximately $124 billion and $139 billion, respectively, 
of non-agency mortgage-related 
securities backed by subprime loans." 
85. The statement 
in the 2006 Information Statement that Freddie Mac's sUbprime 
exposure 
in Single Family was "not significant" was materially false and misleading because it 
communicated the misleading impression that after   considering a mix of credit risk 
characteristics to assess its exposure to subprime loans, Fn,ddie Mac determined that its Single 
Family guarantee portfolio had no significant exposure. 
86. Contrary to its disclosure, at December 31, 2006, Freddie Mac's single-family 
credit guarantee portfolio consisted 
of approximately $141 billion of C1, C2 and EA loans ­
loans that Single Family internally described as "subprime," "otherwise subprime" or "subprime­
. like loans" -	 which represented approximately 
10 percent of Freddie Mac's single-family credit 
guarantee portfolio. 
87. Syron certified, and Cook and Bisenius each signed sub-certifications, for the 
2006 Information Statement even though they knew, or were reckless 
in not knowing, that the 
30 


disclosure regarding exposure. to subprime . loans contained in the 2006 Information Statement 
was materially false and misleading. 
88. The disclosures contained in Freddie Mac's 2006 Information Statement were 
incorporated by reference into, among other things, Freddie Mac's April 10, 2007 Offering 
Circular, pursuant to which Freddie Mac issued $500 million 
of 5.66 percent non-cumulative 
perpetual preferred stock. 
Syron Makes a Materially False and Misleading Statement Regarding 
Freddie 
Mac's Exposure to Subprime Loans on an EarningsCon(erence Call 
89. The same day that Freddie Mac published the 2006 Information Statement, the 
Company's senior executives held an earnings conference call. Syron and others participated in 
the call. On the call, Syron had the following question-and-answer exchange with a  research 
analyst: 
Q: "Seems like over the last couple 
of years that subprime 
market has really replaced the FHA product. You and to some 
degree Fannie Mae both have abstained from those higher LTV 
products
...." 
A: "Fortunately, at least speaking for ourselves as a  GSE, we 
as you know. weren't involved in underwriting much 
of that 
business any 
of that business directly. Having said all of that ... 
[w]e are working fairly intensely right now on how we can develop 
products in the subprime space that [are] 
b()th shareholder and 
consumer friendly 
... we're doing it on a pretty accelerated basis." 
90. Syron's statement that, with respect to the subprime market, Freddie Mac was not 
"involved in underwriting much 
of that business any of that  business directly" was materially 
false and misleading. Furthermore, his answer reinforced the already misleading impression that 
Freddie Mac did not participate in the "subprime space," but was exploring ways to develop 
products for that market. 
31 


Syron and Cook Make Materially False and Misleading Statements Regarding 
Single Family's Exposure to Subprime in Speeches 
at Investor Conferences 
91. Less than two months after the 2006 Infonnation Statement was issued, Syron and 
Cook each spoke at separate investor conferences and reiterated the misleading assertion that 
Single Family's exposure to subprime loans was not significant. 
92. On May 
14, 2007, Syron spoke in New York at the UBS Global Financial 
Services Conference (the "UBS Conference") and stated: "As we discussed 
in the past, at the 
end 
of 2006, Freddie had basically no subprime exposure in our guarantee business, and about 
$124 billion 
of AAA rated subprime exposure in our retained portfolio." 
93. Three days later, on May 
17, 2007; Cook gave a  speech at the Lehman Brothers 
10th Annual Financial Services Conference (the "Lehman Conference") 
in London and stated: 
"As we discussed 
in the past, at the end of 2006, Freddie had basically no subprime exposure in 
our guarantee business, and about $124 billion 
of AAA rated subprime exposure in our retained 
portfolio." 
94. Each ·of Syron's statement at the UBS Conference quoted in Paragraph 
92 and 
Cook's statement 
at the Lehman Conference quoted in Paragraph 93 was materially false and 
misleading because the statements reinforced the misleading impression that Freddie Mac had 
little or no exposure to subprime loans 
in its Single Family guarantee business and was not in the 
"subprime space." 
95. Prior to these speeches, Syron and Cook both knew or were reckless in not 
knowing that it  was false and misleading 
to claim the Company "had basically no subprime 
exposure." The then-head 
of External Reporting and others at Freddie Mac recognized that this 
statement was inaccurate. 
32 


96. Prior to Syron and Cook giving these speeches, Freddie Mac's then-head of 
External Reporting reviewed a draft of Syron's speech and warned Bisenius, among others, that 
it would 
be false to state that Freddie Mac has basically no exposure to subprime: 
We need to be careful how we word this. Certainly our portfolio 
includes loans that under some definitions would be considered 
subprime. . 
.. We should reconsider making as sweeping a 
statement as we have "basically no subprime exposure." 
97. Bisenius· did not respond to the concern raised by the then-head 
of External 
Reporting or otherwise seek to correct the speeches before they were given. He reported to Cook 
at the time. 
First 
and Second Quarters o{2007 
98. On June 14,2007, Freddie Mac published its financial report for the three months 
ended March 31, 2007 (the 
"IQ07 Information Statement Supplement"), which appended, 
among other things, a June 
14 press release in which Syron suggested that Freddie Mac was just 
starting to become exposed to sUbprime: 
"I'm particularly proud that our company took a 
leadership role in the subprime mortgage market, announcing new underwriting standards and 
products and committing to purchase up to 
$20 billion mortgages to support subprime 
borrowers." 
99. Freddie Mac did not quantify its subprime exposure 
in its lQ07 Information 
Statement Supplement but incorporated by reference the misleading subprime disclosure . 
contained 
in its 2006 Information Statement. 
100. The disclosures contained in Freddie Mac's 2006 Information Statement and its 
1 Q07 Information Statement Supplement were incorporated by reference into, among  other 
things, Freddie Mac's July 17, 2007 Offering Circular, pursuant to which Freddie Mac issued 
$500 million 
of 6.02 percent non-cumulative perpetual preferred stock. 
33 

10l.0n August 30, 2007, Freddie Mac published its 2Q07 Information Statement 
Supplement, which purported to disclose Freddie Mac's total Single Family exposure to 
subprime: 
Participants in the mortgage market often characterize single­
family loans based upon their overall credit quality at the time 
of 
origination, generally considering them to be prime or subprime. 
There is no universally accepted definition 
of sUbprime. The 
subprime segment 
of the mortgage market primarily serves 
borrowers with poorer credit payment . histories and such loans 
typically have a mix 
of credit characteristics that indicate a higher 
likelihood 
of default and higher loss severities than prime loans. 
Such characteristics might include a  combination 
of high loan-to­
value ratios, low credit scores or originations using lower 
underwriting standards such as limited or no documentation 
of a 
borrower's income. The subprime market helps certain borrowers 
by broadening the availability 
ofmortgage credit. 
We estimate that approximately $2 billion, or 0.1 percent, and $3 
billion, or 0.2 percent,· of loans underlying our single-family 
mortgage portfolio, at June 30, 2007 and December 31, 2006, 
respectively, were classified as subprime mortgage loans. 
The 2Q07 Information Statement Supplement also disclosed that, at June 30, 2007 and 
December 31, 2006, Freddie Mac held in its Retained Portfolio -  which 
is distinct from the 
Single Family guarantee portfolio -  "approximately $119billion and $124 billion, respectively, 
of non-agency mortgage-related securities backed by subprime loans." 
102. The statement in Freddie Mac's 2Q07 Information Statement Supplement 
concerning Single Family's exposure to subprime 
in it  guarantee portfolio was materially false 
and misleading. 
It communicated the misleading impression that, after considering a  mix of 
credit risk characteristics to assess its exposure to subprime loans, Freddie Mac determined that 
its Single Family guarantee portfolio included only 
$2 billion, or 0.1 percent, of subprime loans 
as ofJune 30, 2007. 
34 


:-:<';:--.. -.'.-... 
103. Contrary to its disclosure, as of June 30, 2007, Freddie Mac's Single Family 
guarantee portfolio consisted 
of more than $182 billion of C1, C2 and EA loans -loans 
internally described as "subprime," "otherwise subprime" or "subprime-like loans" -which 
represented approximately 1 
I percent ofthe Single Family credit guarantee portfolio. 
104. In July 2007, 
in between the publication of Freddie Mac's lQ07 and 2Q07 
Information Statement Supplements, Cook was involved in developing the Company's definition 
of subprime for disclosure purposes. 
105. Syron certified and Cook and Bisenius each sub-certified 
the2Q07 Information 
Statement Supplement even though they knew or were reckless 
in not knowing that the 
Statement was materially false and misleading. 
106. The 
di~closures contained in Freddie Mac's 2006 Information Statement and its 
2Q07 Information Statement Supplements were incorporated by reference into,· among other 
things, Freddie Mac's September 25, 2007 Offering Circular, pursuant to which  Freddie Mac 
issued $500 million 
of 6.55 percent non-cumulative perpetual preferred stock. 
Third Quarter 
0(2007 
107. On November 20,2007, Freddie Mac published its 3Q07 Information Statement 
Supplement, which purported to disclose Freddie Mac's total Single Family exposure to 
subprime: 
Participants 
in the  mortgage market often characterize single­
family loans based upon their overall credit quality at the time 
of 
origination, generally considering them to be prime or subprime. 
There is no universally· accepted definition 
of subprime. The 
subprime segment 
of the   mortgage market primarily serves 
borrowers with poorer credit payment histories and such loans 
typically have a mix 
of credit characteristics that indicate a higher 
likelihood 
of default and higher loss severities than prime loans. 
Such characteristics might include a  combination 
of high loan-to­
value ratios, low credit scores or originations using lower 
underwriting standards such 
as limited or no documentation of a 
35 


borrower's income. The subprime market helps certaIn borrowers 
by broadening the availability 
ofmortgage credit. 
We estimate that approximately 
$5 billion and $3 billion of loans 
underlying our Structured Transactions at September 30, 2007 and 
December 31, 2006, respectively, were classified as subprime 
mortgage loans. 
The 3Q07 Information Statement Supplement also disclosed that, at September 30, 2007 and 
December 31, 2006, Freddie Mac held 
in its Retained Portfolio -   which is distinct from the 
Single Family guarantee portfolio -  "approximately $105 billion and $124 billion, respectively, 
ofnon-agency mortgage-related securities backed by subprime loans." 
108. The statement in Freddie Mac's 3Q07 Information Statement Supplement 
concerning Single Family's exposure to subprime 
in its guarantee portfolio was materially false 
and misleading. 
It communicated the misleading impression that, after considering a  mix of 
credit risk characteristics to· assess its exposure to subprime loans, Freddie Mac had determined 
that its Single Family guarantee portfolio included only 
$5 billion of subprime loans as of 
September 30, 2007. 
109. Contrary to its disclosure, Freddie Mac's Single Family credit guarantee portfolio 
had exposure to approximately $206 billion of C1, C2 and EA loans -  loans internally described 
as "subprime,""otherwise subprime" or "subprime-like loans" -which represented 
approximately 
13 percent of the Single Family credit guarantee portfolio as of September 30, 
2007. 
110. Syron certified and Cook sub-certified the 3Q07 Information Statement 
Supplement even though they knew or were reckless 
in not knowing that the Statement was 
materially false and misleading. 
Ill. The disclosures contained in Freddie Mac's 2006 Information Statement and its 
3Q07 Information Statement Supplements were incorporated by reference into, among other 
36 


,~. ~,-~ :.-.':" ., ~ 
:". :".' -','." ~ .~. -':.--.-~ "'~'-.. ". 
things, Freddie Mac's November 29, 2007 Offering Circular, pursuant to which Freddie Mac 
issued $6 billion offixed-to-floating rate non-cumulative perpetual preferred stock. 
Syron Makes a False andMisleading Statement Regarding 

Single Family's Exposure 
to Subprime at an Investor Conference 

112. On December 11, 2007, Syron spoke at a  Goldman Sachs & Co. Financial 
Services Conference (the "GS Conference") in New York. At the 
GS Conference, Syron 
knowingly or recklessly made the false and misleading representation that Freddie Mac had not 
guaranteed any subprime loans 
in its Single Family guarantee business. He stated: 
Finally, we feel that our credit position in the current guarantee 
book, actually, is  very near the best of the entire industry. A very 
major reason for this is that we have very low exposures to alt A 
in 
risk-layered mortgage products in the guarantee business. We 
didn't do any subprime business. . 
.. In terms of our insight into 
the subprime stuff, we didn't buy any 
sUbprime loans. I mean, we 
bought some securities, which we can go through, and we think 
we're fine in. We bought them for goal purposes. But we didn't 
buy 
in guarantee, essentially any subprime loans. So we weren't in 
that business. 
113. Syron's statement was materially false and misleading because his statement 
reinforced the misleading impression that Freddie Mac had little or no exposure to subprime 
loans in its Single Family guarantee business. Although Syron appears to have rationalized this 
false and misleading statement based on the fact that Single Family did not typically acquire 
loans from a  small handful 
of institutions that self-identified as subprime originators, this 
rationale was not publicly disclosed and not shared with the audience as the basis 
for his 
sweeping public statement. 
In fact, as set forth above, at the time of Syron's statement, the 
Freddie 
Mac Single Family guarantee business consisted of approximately $206 billion of 
exposure to loans that Freddie Mac internally recognized were "subprime," "otherwise 
subprime" or "subprime-like." 
37 


Year-End 2007 
114. 
On February 28, 2008, Freddie Mac published its 2007 Information Statement, 
which purported to disclose Freddie Mac's total Single Family exposure to subprime: 
Participants in the mortgage market often characterize single­
family loans based upon their 
overall credit quality at the time of 
origination, generally considering them to be prime or subprime. 
There is no universally accepted definition 
of subprime. The 
subprime segment 
of the mortgage market primarily serves 
borrowers with poorer credit payment histories and such loans 
typically have a mix 
of credit characteristics that indicate a higher 
. likelihood 
of default and higher loss severities than prime loans. 
Such characteristics might include a  combination 
of high LTV 
ratios, low credit scores or originations using lower underwriting 
standards such as limited or no documentation 
of a  borrower's 
income. The subprime market helps certain borrowers by 
broadening the availability 
ofmortgage credit. 
While we have not historically characterized the single-family 
loans underlying our 
PCs and Structured Securities as either prime 
or subprime, we 
do monitor the amount of loans we have 
guaranteed with characteristics that indicate a  higher degree 
of 
credit risk. See "Mortgage Portfolio Characteristics -Higher 
Risk Combinations" for further information. 
We estimate that· 
approximately $6 billion and $3 billion of loans underlying our 
Structured Transactions at December 31, 2007 and 2006, 
respectively, were classified as subprime mortgage loans. 
The 2007 Information Statement Supplement also disclosed that, as 
of December 31, 2007 and 
December 31, 2006, Freddie Mac held in its Retained Portfolio -  which is distinct from the 
Single Family guarantee portfolio -  "approximately $110 billion and $122 billion, respectively, 
of non-agency mortgage-related securities backed by subprime loans." Additionally, Freddie 
Mac announced that, to date, it  had  made purchase commitments 
of $207 million of mortgages 
on primary residence, single-family properties, pursuant to the commitment it announced in 
April 2007  to purchase up to $20 billion in fixed-rate and hybrid ARM products and also 
purchases 
of $43 billion of mortgages to borrowers that otherwise might have been limited to 
subprime products. 
38 


.---.",' 
.:<•..~::.:-~-:.~-.:<:.• 
115. The statement in Freddie Mac's 2007 Information Statement concerning Single 
Family's subprime exposure in its guarantee portfolio was materially false and misleading 
because· it  communicated the misleading impression that, after considering a  mix 
of credit risk 
characteristics· to assess its exposure to subprime loans, Freddie Mac had determined that its 
Single Family guarantee portfolio included only $6 billion of exposure to subprime loans as of 
December 31,2007. 
116. Contrary to its disclosure, Freddie Mac was exposed in its Single Family 
guarantee business to approximately $226 billion 
of C1, C2 and EA loans -   loans internally 
described as "subprime," "otherwise subprime" or "subprime-like loans" -  which represented 
approximately 
13 percent of Freddie Mac's Single Family credit guarantee portfolio as of 
December 31, 2007. 
117. Syron certified and Cook sub-certified the 2007 Information Statement even 
though they knew or were reckless in not knowing that the Statement was materially false and 
misleading. 
First Quarter 
0(2008 
118. On May 14, 2008, Freddie Mac published its lQ08 Information Statement 
Supplement, purported to assureinvestors that it monitors the subprime loans it  guarantees 
and 
purported to disclose Freddie Mac's exposure to subprime loans underlying Structured 
Transactions: 
Participants in the  mortgage market often characterize single­
family loans  based upon their overall credit quality at the time 
of 
origination, generally considering them to be prime or subprime. 
There is 
no. universally accepted definition of subprime. The 
subprime segment 
of the mortgage market primarily serves 
borrowers . with poorer credit payment histories and such loans 
typically have a mix 
of credit characteristics that indicate a higher 
likelihood 
of default and higher loss severities than prime loans. 
39 


, ".' ,.,......,., ..~.. ","-
v'._ 
. ,.,' .. , ., ~ , ~ . 
_ 
.'.' '."r ',',. _'.'~, . 
Such characteristics might include a  combination of high LTV 
ratios, low credit scores or originations using lower underwriting 
standards such as limited or no documentation 
of a  borrower's 
income. The subprime market helps certain borrowers by 
broadening the availability 
of mortgage credit. While we have not 
historically characterized . the single-family loans underlying our 
PCs and Structured Securities as either prime or subprime,  we 
do 
monitor the amount of loans we have guaranteed with 
characteristics that indicate a  higher degree 
of credit risk (see 
"Higher Risk Combinations" for further information). 
In addition, 
we estimate that approximately 
$4 billion of security collateral 
underlying our Structured Transactions at both March 31, 2008 and 
December 31, 
2007. were classified as subprime. 
The 1 Q08 Information Statement Supplement also disclosed that, as 
of March 31, 2008. and 
December 31, 2007, Freddie Mac held 
in its Retained Portfolio -  which is distinct from the 
Single Family guarantee portfolio -  "approximately 
$93 billion and $101 billion, respectively, of 
non-agency mortgage-related securities backed by subprime loans." 
119. The statement in Freddie Mac's lQ08 Information Statement Supplement 
concerning Single Family's exposure to subprime in its guarantee portfolio was materially false 
and. misleading because it communicated the misleading impression that, after considering a mix 
of credit risk characteristics to assess its exposure to subprime loans, Freddie Mac had 
determined that its total Single Family exposure to subprime loans was only 
$4 billion, or the 
amount 
of its Structured Transactions as of March 31, 2008. In fact, at the time, Freddie Mac 
was exposed to approximately $239 billion 
of C1, C2 and EA loans -  loans that were internally 
referred to 
as "subprime," "otherwise subprime"or "subprime-like loans -  which represented 
approximately 
14 percent ofFreddie Mac's Single Family credit guarantee portfolio. 
120. Syron certified and Cook sub-certified the lQ08 Information Statement 
Supplement even though they knew or were reckless in not knowing that the Statement was 
materially misleading. 
.t 
40 


Second Quarter 0(2008 
121. On August 6, 2008, Freddie Mac filed with the Commission its 2Q08 Form lO-Q, 
which was the first periodic report it  filed following its registration with the Commission. The 
2Q08 Form lO-Q disclosed the following regarding Freddie 
Mac's subprime exposure: 
Participants in the mortgage market often characterize single­
family loans based upon their overall credit-quality at the time 
of 
origination, generally considering them to be prime or subprime. 
There is no universally accepted definition 
of subprime. The 
subprime segment 
of the mortgage market primarily serves 
borrowers with poorer credit payment histories and  such loans 
typically have a mix 
of credit characteristics that indicate a higher 
likelihood 
of default and higher loss severities than prime loans. 
Such characteristics might include a  combination 
of high LTV 
ratios, low credit scores or originations using lower underwriting 
standards such as limited or no documentation 
of a  borrower's 
income. The subprime market helps certain borrowers 
by 
broadening the availability of mortgage credit. While we have not 
historically characterized the single-family loans underlying our 
PCs and Structured Securities as either prime orsubprime, we do 
monitor the amount 
of loans we have guaranteed with 
characteristics that indicate a  higher degree 
of credit risk (see 
"Higher Risk Combinations" for further information). In addition, 
we estimate that approximately $6 billion of security collateral 
underlying our Structured Transactions at both June 30, 2008 and 
December 31, 2007 were classified as subprime. 
Although we do not categorize our single-family loans into prime 
or subprirpe, we recognize that certain 
ofthe mortgage loans in our 
retained portfolio exhibit higher risk characteristics. Total single­
family loans include $1.3 billion at both June 30, 2008 and 
December 31, 2007, 
of loans with higher-risk characteristics, 
which we define as loans with original LTV ratios greater than 
90% and borrower credit scores less than 620 
at the time of loan 
origination. 
The 2Q08 Form 10-Q also disclosed that, 
as 6fJune 30, 2008 and December 31, 2007, Freddie 
. Mac held in its Retained Portfolio -  which is  distinct from the Single Family guarantee portfolio 
41 


-   "approximately $86 billion and $101 billion, respectively, of non-agency mortgage-related 
securities backed by subprime loans." 
122. The statement in Freddie Mac's 2Q08 Form 
IO-Q concerning Single Family's 
exposure to subprime 
in its guararitee portfolio was materially false and misleading. It 
communicated the misleading impression that, after considering a mix 
of credit   risk 
characteristics to assess its exposure to subprime loans, Freddie Mac had determined that its 
Single Family exposure to subprime loans was only $6 billion, or the amount 
of its Structured 
Transactions, 
as of June 30, 2008. In fact, at Jl,me 30, 2008, Freddie Mac's Single Family 
guarantee portfolio was exposed to approximately $244 billion 
of C1, C2 and EA loans -  loans 
that were internally referred to as "subprime," "otherwise subprime" or "subprime-like loans ­
which represented approximately 
14 percent of Freddie Mac's Single Family credit guarantee 
portfolio. 
123. Syron certified and Bisenius and Cook sub-certified to the 2Q08 Form 10-Q even 
though they knew or were reckless in not 
knOWing that the Statement was materially false and 
misleading. 
124. The chait below summarizes (in billions 
of u.S. dollars) the approximate 
exposure to subprime loans 
in the Freddie Mac Single Family guarantee business, as disclosed 
by Freddie Mac, compared to the Freddie Mac exposure to Caution Loans 
(C 1 and C2)and EA 
loans -  loans that were internally described as "subprime," "otherwise subprime" or "subprime 
like" -  during the same period: 
42 


Significant" 
0.1% 
$141 $1,467 
10% 
0.1% 
$159 $1,528 
10% 
0.1% 
$182 $1,586 
11% 
N/A 
$206 $1,642 
13% 
N/A 
$226 $1,692 
13% 
N/A 
$239 $1,739 
14% 
N/A 
$244 $1,784 14% 
FIRST CLAIM FOR RELIEF 
Violations 
of Section lO(b) of the Exchange Act and Rules lOb-5(b) 
(Against Syron and Cook) 
125. Paragraphs 1  through 124 are realleged and incorporated by reference as if set 
forth fully herein. 
126; Syron and Cook, directly or indirectly, by use 
ofthe means or instrumentalities of 
interstate commerce, or by use of the mails, or of the facilities of a national securities exchange, 
in connection with the 
pur~hase or sale of Freddie Mac securities~ knowingly or recklessly, made 
43 


untrue statements of material facts and omitted to state material facts necessary in order to make 
the statements made, in the light 
of the circumstances under which they were made, not 
misleading. 
127. 
By reason of the foregoing, Syron and Cook violated, and unless enjoined will 
again violate, Section 10(b) 
of the Exchange Act [15 U.S.C. § 78j(b)] and Rule lOb-5(b) 
thereunder [17 C.F.R. 
§ 240.l0b-5(b)]. 
SECOND CLAIM FOR RELIEF 

Aiding and Abetting Violations of 

Section lO(b) ofthe Exchange Act and Rules lOb-5(b) 

(Against 
Syron, Cook and Bisenius) 

128. Paragraphs 1  through 127 are realleged and incorporated 
by reference as if set 
forth fully herein. 
129. Freddie Mac, directly 
or indirectly, by use of the means or instrumentalities of 
interstate commerce, or by use ofthe mails, or ofthe facilities of a national securities exchange, 
in connection with the purchase or sale 
of securities, knowingly or recklessly, made untrue 
statements 
of material facts and omitted to state material facts necessary in order to make the 
statements made, in the light 
ofthe circumstances under which they were made, not misleading. 
130. 
By reason of the foregoing, Syron knowingly or recklessly provided substantial 
. . 
assistance to and thereby aided and abetted Freddie Mac in its violations of Exchange Act 
Section 10(b) and Rule IOb-5(b) [17 C.F.R. 
§ 240.l0b-5(b)]; therefore, Syron is liable pursuant 
to Exchange Act Section20(e) [15 
U.S.c. § 78t(e)]. 
131. 
By reason of the foregoing, Cook knowingly or recklessly provided substantial 
assistance to Freddie Mac and/or Syron and thereby aided and abetted Freddie Mac and/or Syron 
in their violations ofExchange Act Section 10(b) and Rule lOb-5(b) [17 C.F.R. § 240.l0b-5(b)]; 
therefore, Cook is liable pursuant to Exchange Act Section 20(e) [15 
U.S.c. § 78t(e)]. 
44 


, , 
132. By reason ofthe foregoing, Bisenius knowingly or recklessly provided substantial 
assistance to Freddie Mac, Syron and/or Cook and thereby aided and abetted Freddie Mac, Syron 
and/or Cook in their violations 
of Exchange Act Section 1 O(b) and Rule 1 Ob-5(b) [17 C.F.R. 
§ 240.10b-5(b)]; therefore, Bisenius is liable pursuant to Exchange ACt Section 20(e) [15 U.S.c. 
§ 78t(e)]. 
133. Unless restrained and enjoined, Syron, Cook and Bisenius will in the future aid 
and abet violations 
of Section 10(b) ofthe Exchange Act [15 U.S.C. § 78j(b)] and Rule lOb-5(b) , 
thereunder [17 C.F.R. 
§ 240.l0b-5(b)]. 
THIRD CLAIM FOR RELIEF 

Violations of Sections 17(a)(2) of the Securities Act 

(Against Syron 
and Cook) 

134. Paragraphs 1 through 133 are realleged and incorporated by reference as if set 
forth fully herein. 
135. 
Syron and Cook, directly or indirectly, 
in the offer and sale of Freddie Mac 
securities, by use 
of the means and instruments oftransportation and communication in interstate 
commerce and by use 
ofthe mails, knowingly, recklessly, or negligently have obtained money or 
property by means 
of untrue statements of material fact or omitted to state material 'facts 
necessary in order to make the statements made, 
in light of the circumstances under which they 
were made, not misleading. 
136. 
By reason the foregoing, Syron and Cook violated, and unless enjoined will again 
violate, Section 17(a)(2) 
ofthe Securities Act [15 U.S.c. § 77q(a)(2)]. 
45 


...... " 
.:.<.:-:-:: 
FOURm CLAIM FOR RELIEF 
Violation of Exchange Act Rule 13a-14 
(Against Syron) 
137. Paragraphs 1 through 136 are realleged and incorporated by reference as if set 
forth fully herein. 
138. 
On August 
6, 2008, Syron signed false certifications pursuant to Section 302 of 
the Sarbanes-Oxley Act of2002 and Rule 13a-14 promulgated thereunder, that were included in 
Freddie Mac's Form 10-Q filed with the Commission on that date. His certification falsely 
stated that: he had reviewed each report; based upon his knowledge, the reports did not contain 
any untrue statement 
of a  material fact or omit to state a  material fact necessary to make the 
statements made, 
in light of the circumstances under which such statements were made, not 
misleading; and based upon his knowledge, the financial statements and information contained 
in 
each report fairly present in all material respects the financial condition, results ofoperations and 
cash flows 
ofthe issuer. 
139. By reason 
of the foregoing, Syron violated, and unless restrained and enjoined 
will 
in the future violate, Exchange Act Rule 13a-14 [17 C.F.R. §  240.13a-14] promulgated 
under Section 302 
ofthe Sarbanes-Oxley Act of2002. 
FIFTH CLAIM FOR RELIEF 

Aiding and Abetting Violations of Section 13(a) of the 

Exchange Act and Rules 12b-20 and 13a-13 

(Against Syron, Cook 
and Bisenius) 

140. Paragraphs 1  through 139 are realleged and incorporated by reference as if set 
forth fully herein. 
141. Section 13(a) 
of the Exchange Act and Rule 13a-13 thereunder require issuers of 
registered securities to file with the Commission factually accurate quarterly reports. Exchange 
46 


Act Rule 12b-20 provides that, in addition to the information expressly required to be included in 
a  statement or report, there shall be added such further material information, if any, as may be 
necessary to make the required statements, in the light 
ofthe circumstances under which they are 
made, not misleading. 
142. Freddie Mac violated Exchange Act §  13(a) 
[15 U.S.c. § 78m(a)] and Exchange 
Act Rules 12b-20 and 13a-13 [17 C.F.R. 
§§ 240.l2b-20, 240. 13a-13]. 
143. By reason of the foregoing, Syron, Cook and Bisenius acted knowingly or 
recklessly provided substantial assistance to and thereby aided and abetted Freddie Mac's 
violations 
of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 
12b-20 and 13a-13 [17 C.F.R. 
§§ 240.12b-20 and 240.l3a-13]; therefore, each is  liable pursuant 
to Exchange Act Section 20(e) [15 U.S.C. § 78t(e)]. 
PRAYER FOR RELIEF 
WHEREFORE, the Commission respectfully requests that this Court: 
(a) Permanently restrain and enjoin defendants Syron and Cook from violating or 
aiding and abetting violations 
of Section 17(a) of the Securities Act [15 U.S.C. 
§ 77q(a)], Section 
lOeb) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule IOb-5(b) thereunder 
[17 C.F.R. §  240.10b-5(b)], Section 13(a) 
of the Exchange Act [15 U.S.c. §  78m(a)] and 
Exchange Act Rules 12b-20 and 13a-13, and with respect to defendant Syron only, Exchange 
Act Rule 13a-14 [17C.F.R. §§ 240.b-20, 240.13a-13, and 240.13a-14]; 
(b) Permanently restrain and enjoin defendant Bisenius from aiding and abetting 
violations 
of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5(b) 
thereunder [17 C.F.R. § 
240.l0h.. 5(b)], Section 13(a) of the Exchange Act [15 U.S.c. § 78m(a)] 
and Exchange Act Rules 12b-20 and 13a-13 [17 C.F.R. 
§§ 240.b-20and 240. 13a-13]; 
47 


·........-'. -.'.. . :;. ~.: -, 

'~. ..'.' . 
(c) Order Syron, Cook and Bisenius to pay disgorgement, together with prejudgment 
interest; 
(d) Order Syron, Cook and Bisenius to pay penalties pursuant to Section 20(d) 
of the 
Securities Act 
[15 U.S.C. §  77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.c. 
§ 78u(d)(3)]; 
(e) . Permanently bar Syron, Cook and Bisenius, pursuant to 
Section 20(e)of the 
Securities 
Act [15 U.S.C. §77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. 
§  78u(d)(2)]; from acting as an officer or director 
of any issuer that has a claSs of securities 
registered under Section 
12 of the Exchange  Act [15 U.S.C. § 781] or that is required to file 
reports pursuant to Section 15(d) 
ofthe Exchange Act [15 U.S.C. § 780(d)]; and 
48 


....:::... ::.::":­
(t) Grant such other relief as this Court may deem necessary and proper. 
Dated: December 
14, 2011 
Washington, DC 
OfCounsel: 
Stephen 
L. Cohen 
Charles 
E. Cain 
Giles T. Cohen 
David 
S. Karp 
Suzanne 
J. omajas 
Kevin P. O'Rourke 
SECURITIES AND EXCHANGE COMMISSION 
100 F Street, N.E. 
Washington, DC 20549-5971 
Tel: 202-551-4473 (Romajas) 
Email (Romajas): 
[email protected] 
Email (O'Rourke): [email protected] 
Counsel for Plaintiff 
49 

~I eN 9201 

UNITED STATES DISTRICT COURT 
FOR THE SOUTHERN DISTRICT OF NEW YORK 

U.S. SECURITIES AND EXCHANGE 
COMMISSION, Civil Action No. U-cv-

Plaintiff, ECFCASE 

v. 

RICHARD F. SYRON, 
PATRICIA L. COOK, and 
DONALD J. BISENIUS, 

Defendants. 

COMPLAINT 

Plaintiff U.S. Securities and Exchange Commission (the "Commission"), alleges for its 

Complaint as follows: 

SUMMARY OF ALLEGATIONS 

1. This action arises out of a series of materially false and misleading public 

disclosures by the Federal Home Loan Mortgage Corporation ("Freddie Mac" or the 

"Company") and certain of its senior executives relating to the exposure of Freddie Mac's largest 

business segment - Single Family Guarantee - to subprime mortgage loans. 

2. Between March 23,2007, and August 6,2008 (the "Relevant Period"), a period of 

heightened investor interest in the credit risks associated with subprime loans, Freddie Mac and 

defendants Richard F. Syron ("Syron"), Patricia L. Cook ("Cook"), and Donald· J. Bisenius 

("Bisenius") misled investors into believing that the Company had far less exposure to these 

riskier mortgages than in fact existed. To that end, at various times, each made or substantially 

assisted Freddie Mac and each other in making materially false· and misleading statements that 



claimed in substance that Freddie Mac had little or no exposure to subprime loans in its Single 

Family Guarantee business. 

3. While Freddie Mac disclosed during the Relevant Period that the exposure. of its 

Single Family Guarantee business to subprime loans was between $2 billion and $6 billion, or 

between 0.1 percent and 0.2 percent, of Freddie Mac's Single Family Guarantee portfolio - its 

exposure to subprime was materially greater. As of December 31,2006, Freddie Mac's Single 

Family Guarantee business was exposed to approximately $141 billion (or 10 percent of the 

portfolio) in loans the Company internally referred to as "subprime," "otherwise subprime" or 

"subprime-like" and its exposure grew to approximately $244 billion (or 14 percent of the 

portfolio) by June 30,2008, as the Company sought to win back lost market share by increasing 

its acquisition of such loans. 

4. Syron had ultimate authority over the subprime disclosures in Freddie Mac's 

Information Statements and supplements to the Information Statements published between 

March 23,2007 and May 14,2008, and in its Form 10-Q filed with the Commission on August 

6, 2008, and also in speeches he gave or public statements he made in 2007 and 2008. Cook 

spoke at an investor conference on May 17, 2007, in which she told investors that Freddie Mac 

had "basically no subprime exposure" and she provided substantial assistance to Syron and 

Freddie Mac in making subprime disclosures in the Information Statements and supplements and 

a Form 10-Q by certifying to the accuracy of the disclosures, which related to her area of 

responsibility. Bisenius also certified to the accuracy of the subprime disclosures in certain 

Information Statements and supplements published during the Relevant Period and the Form 10­

Qand thus substantially assisted Syron and Freddie Mac in making the misleading statements in 

these documents; he also substantially assisted Syron and Cook in making oral misstatements 

2 

~. 



about subprime by failing to correct statements in their prepared speeches that he knew misstated 

the Company's subprime exposure. Each defendant made, or substantially assisted others in the 

making of, these misleading subprime disclosures at a time when each knew, or was reckless in 

not knowing, that the Company was increasing its acquisition of higher-risk loans that it 

internally referred to as "subprime," "otherwise subprime" or "subprime-like." 

5. By this conduct, Syron and Cook violated, and Syron, Cook and Bisenius aided 

and abetted violations of, the antifraud and reporting provisions of the federal securities laws. 

JURISDICTION AND VENUE 

6. This Court has jurisdiction over this action pursuant to Section 22(a) of the 

Securities Act of 1933 (the "Securities Act") [15 U.S.C. § 77v(a)] and Sections 21(d), 21(e), and 

27 of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§ 78u(d), 78u(e), 

and 78aa] and 28 U.S.c. § 1331. 

7. Venue is proper in this Court pursuant to Section 22(a) of the Securities Act 

[15 U~S.C. §77v(a)] and Section 27 of the Exchange Act [15 U.S.c. § 78aa] because certain of 

the acts, practices, transactions and courses of business constituting the violations alleged herein 

occurred within this judicial district. 

8. In connection with the transactions, acts, practices and courses of business alleged 

in this Complaint, Syron, Cook and Bisenius have directly or indirectly made use ofthe means or 

instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities 

exchange in connection with the transactions, acts, practices, and courses of business alleged in 

this Complaint. 

3 




RELEVANT ENTITY 


9. Freddie Mac was, at all times relevant to this Complaint, a shareholder-owned 

Government Sponsored Enterprise ("GSE") established by the U.S. Congress on July 24, 1970, 

with the passage of the Federal Home Loan Mortgage Corporation Act (the "FHLMC Act"), to 

provide a continuous flow of funds for residential mortgages. Freddie Mac performed this 

function by buying and guaranteeing residential mortgage loans and mortgage-related securities, 

which it financed by issuing mortgage-related securities, debt securities and equity securities. 

Under the FHLMC Act, the Company's securities were "exempt securities," meaning they were 

. exempt from the registration and disclosure requirements of the federal securities laws. On July 

18, 2008, Freddie Mac voluntarily registered its common and preferred stock under Section 

12(g) of the Exchange Act by filing a Form 10 registration statement with the Commission. 

Prior to July 18, 2008, Freddie Mac publicly disseminated annual and quarterly reports of its 

financial condition and results of operations in Information Statements and Information 

Statement Supplements, which were virtually identical in presentation to annual and quarterly 

reports filed with the Commission by registrants. Since July 18, 2008, Freddie Mac has been 

subject to the reporting requirements of the federal securities laws. During the Relevant Period, 

Freddie Mac's common stock was actively traded on the New York Stock Exchange under the 

ticker symbol "FRE." Its principal place of business was, and is, in McLean, Virginia. 

1o. Freddie Mac manages its business through three reportable segments: 

(i) Single Family Guarantee ("Single Family"), (ii) Investments, and (iii) Multifamily. 

11. Single Family is Freddie Mac's primary business segment. During the Relevant 

Period, Freddie Mac reported that the size of its Single Family business was $1.4 trillion as of 

December 31, 2006, $1.7 trillion as ofDecember 31, 2007 and $1.8 trillion as ofJune 30, 2008. 

4 




12. Through its Single Family business, Freddie Mac purchases residential mortgages 

and mortgage-related securities in the secondary mortgage market and securitizes them as 

Freddie Mac mortgage-backed securities, known as Participation Certificates ("PCs"). Freddie 

Mac guarantees the payment of principal and interest on the'mortgage loans that underlie these 

PCs in exchange for guarantee fees. 

13. During the Relevant Period, Freddie Mac completed at least four preferred stock 

offerings, raising approximately $7.5 billion: (i) pursuant to an Offering Circular dated April 10, 

2007, it issued $500 million worth of 5.66 percent non-cumulative perpetual preferred stock, 

(ii) pursuant to an Offering Circulated dated July 17, 2007,. it issued $500 million worth of 6.02 

percent non-cumulative perpetual preferred stock, (iii) pursuant to an Offering Circular dated 

September 25, 2007, it issued $500 million of 6.55 percent non-cumulative perpetual preferred 

stock and (iv) pursuant to an Offering Circular dated November 29, 2007, it issued $6 billion 

fixed-to-floating rate non-cumulative perpetual preferred stock. Additionally, in mid-2008, 

Freddie Mac executives attempted to make at least one additional preferred· stock offering in the 

amount of$5.5 billion. Throughout the Relevant Period, Freddie Mac also routinely issued debt 

securities. 

14. On September 6, 2008, following mounting losses, Freddie Mac's primary 

regulator, the FHFA, placed it into conservatorship. On September 7, 2008, FHFA, as 

conservator, adopted a resolution eliminating the par value of Freddie Mac's common stock, 

increasing the number of shares .of Freddie Mac common stock authorized for issuance to four 

billion, preventing Freddie Mac from making any payment to purchase or redeem its capital 

stock or pay any dividends to holders of Freddie Mac's common stock, and limiting the voting 

rights ofholders ofFreddie Mac's common stock. 

5 




DEFENDANTS 


15. Richard F. Syron, age 68, was Chairman of the Board of Directors ("Chairman") 

and Chief Executive Officer ("CEO") of Freddie Mac from December 2003 until September 7, 

2008, when Freddie Mac's regulator, the Federal Housing Finance Agency ("FHF A"), placed it 

into conservatorship~ Syron' s compensation grew from approximately $14.7 million in 2006 to 

$18.3 million in 2007 - tied, in part, to the "Touch More Loans" initiative discussed further 

below in Parawaph 45 and to quarterly financial reporting. Syron formally ceased to be .an 

employee of Freddie Mac on November 7, 2008, and was deemed to have resigned from the 

Board ofDirectors, effective as ofthat date. Syron is a resident ofMassachusetts. 

16. As Chairman and CEO ofFreddie Mac, Syron oversaw all three ofFredrlie Mac's 

reportable segments, including Single Family. As Chairman, Syron was a regular attendee at 

Board meetings and Board committee meetings, including the Board's Mission, Sourcing and 

Technology Committee meetings. As CEO, he chaired a team that he personally selected from 

the upper echelons of executive management called the "SET" or "Senior Executive Team," 

which met periodically to consider Freddie Mac's strategic direction. Syron also regularly 

attended monthly meetings of the Enterprise Risk Management Committee (the "ERMC"), 

which was a committee comprised of executives and senior management from Freddie Mac's 

three reportable segments that considered the status of credit, market and operational risks, 

among others, to the Freddie Mac enterprise. Syron received monthly materials from the ERMC 

that apprised him of the credit, market and operational risks, among others, to the Freddie Mac 

enterprise. Syron also attended meetings ofthe ERMC. 

17. Syron had extensive knowledge and experience in housing market-related issues. 

He wrote a dissertation about the housing market and served in various leadership positions at 

6 



both the Federal Reserve Bank of Boston and the Federal Home Loan Bank ofBoston, including 

President and CEO. Syron was knowledgeable about the housing market and mortgage-related 

risks,.and familiar with the views held by other market participants. 

18. Syron regularly received and reviewed drafts of the Freddie Mac Information 

Statements and Annual Reports to Stockholders ("Information Statements") and supplements to 

the Information Statements ("Information Statement Supplements") and, once Freddie Mac 

became an SEC-reporting company, drafts of Freddie Mac's first Form 10-Q. Syron certified 

Freddie Mac's Information Statements and Supplements published between March 23, 2007 and 

May 14,2008, and Freddie Mac's Form 10-Q filed with the Commission on August 6, 2008. 

19. Patricia L. Cook, age 58, was an officerofFreddie Mac and held several titles, 

including Executive Vice President ("EVP") of Investments and Capital Markets and Chief 

Business Officer ("CBO"), from August 2004 through September 26, 2008. Cook's 

compensation was $4.9 million in 2006 and $4.8 million in 2007 - tied, in part, to the Touch 

More Loans strategy discussed below in Paragraph 45 and to quarterly financial reporting. Cook 

formally ceased to be an employee of the Company on November 17, 2008, approximately two 

months after the Company announced certain management and organizational changes, including 

the elimination of her position. Cook isa resident of Washington, D.C. 

20. As EVP of Investments and Capital Markets and as CBO, Cook oversaw Single 

Family. Cook attended Board meetings and Board committee meetings, including the Board's 

Mission, Sourcing and Technology Committee meetings. Cook was one ofthe senior executives 

who served on Syron's SET. She also attended or, on occasion, sent representatives on her 

behalf, to the monthly ERMC meetings. She received materials from the ERMC that apprised 

her of the credit, market and operational risks, among others, to the Freddie Mac enterprise~ As 

7 




the senior executive in charge of the Single Family business, Cook was knowledgeable about 

Freddie Mac's acquisitions and the perfonnance of Freddie Mac's high risk loan portfolio, 

including certain loans the Company internally considered to be subprime. 

21. The Touch More Loans strategy, discussed below in Paragraph 45, also played a 

role in Cook's compensation. In 2006, Cook's target bonus was $2 million and her target long­

tenn equity award for perfonnance was $2.4 million. Cook received a bonus of $2.3 million, or 

$300,000 in excess ofher target, and a long-tenn equity award equating to $2.763 million, or 

$363,000 greater than her target, in part due to Cook's Touch More Loans strategy. In 2007, 

Cook received a bonus of $1.4 million dollars plus a supplemental bonus of $200,000 with a 

three-year vesting schedule, again in part because ofTouch More Loans. 

22. Cook was responsible for ensuring that Single Family's public disclosures were 

accurate. Cook was considered an expert on credit risk within Freddie Mac. Furthennore, 

during the Relevant Period, the Disclosure Committee consulted Cook at least once regarding the 

Company's public disclosures concerning subprime. 

23. Cook signed sub-certifications directed to Syron and other senior executives for 

each Freddie Mac Infonnation Statement and Infonnation Statement Supplement published 

between March 23, 2007 and May 14, 2008, and for Freddie Mac;s Fonn lO-Q filed with the 

Commission on August 6, 2008. Each of Cook's sub-certifications covered the Company's 

subprime disclosures. 

24. Donald J. Bisenius, age 53, was employed by Freddie Mac from 1992 through 

April 1, 2011, and held a number of titles, including Senior Vice President ("SVP") of Credit 

Policy and Portfolio Management from November2003 to April 2008, SVP of Single Family 

8 




Credit Guarantee from May 2008 to May 2009 and, most recently, EVP of Single Family Credit 

Guarantee. Bisenius is a resident ofVirginia. 

25. In 2007 and 2008, Bisenius reported directly to Cook and was the senior-most 

officer for credit risk in Single Family during the periods covered by the Information Statement 

and Information Statement Supplements for the periods ended December 31, 2006, March 31 

and June 30, 2007, the Information Statement Supplement for the period ended March 31, 2008, 

and the Form 10-Q for the period ended June 30, 2008. As the senior-most officer for credit risk 

in Single Family, Bisenius was recognized within Freddie Mac as an expert on single-family 

mortgages and on credit risk and was responsible for developing credit policies for Freddie 

Mac's guarantee ofloans. 

26. Between approximately March 2007 and April 2008, Bisenius also focused on 

certain "special projects," including a "Model Subprime Offering" discussed below in Paragraph 

61, aimed at borrowers previously serviced by lenders who self-identified as subprime 

originators. 

27. Bisenius signed sub-certifications for each Freddie Mac Information Statement 

and Information Statement Supplement published between March 23, 2007, and August 30, 

2007, Freddie Mac's Information Statement Supplement published on May 14, '2008, and 

Freddie Mac's Form 10-Q filed with the Commission on August 6, 2008. Each ofBisenius' sub­

certifications covered the Company's subprime disclosures. Bisenius also served on the 

Disclosure Committee that considered Freddie Mac's Information Statement Supplement for the 

period ended March 31, 2008, and its Form 10-Q for the period ended June 30, 2008. 

9 




Background 

28. As described below, in or about June 2006, Freddie Mac began to quantify in its 

public disclosures the approximate amount of exposure to subprime loans in the Single Family 

guarantee business .. During the Relevant Period, Freddie Mac provided various such estimates ­

ranging between $2 and $6 billion, or OJ to 0.2 percent of its Single Family guarantee business. 

In fact, during this period, Single Family had exposure to between approximately $140 billion 

and $244 billion of loans that Freddie Mac internally recognized were "subprime," "otherwise 

subprime" or "subprime-like." The misleading statements identified herein all relate to attempts 

by Freddie Mac and its senior executives, including defendants, to minimize and mislead 

investors concerning the exposure of Freddie Mac's Single Family guarantee business to 

subprime loans. 

29. Beginning with its Information Statement for the fiscal year ended December 31, 

2003 (the "2003 Information Statement"), and continuing through the Relevant Period, Freddie 

Mac published tables of credit risk characteristics for Single Family loans (the "Credit Risk 

Tables"). Those Credit Risk Tables contain information describing risk characteristics such as 

original loan-to-value ("LTV") ratio bands,product type, property type, occupancy type, FICO 

credit score bands, loan purpose, geographic concentration, and origination year. The Credit 

Risk Tables did not quantify or otherwise provide estimates of Freddie Mac's exposure to 

subprime loans. 

30. In or about March 2007, as investor interest in the credit risk associated with 

subprimeloans continued to increase, Freddie Mac began to provide narrative disclosure 

describing and estimating the exposure of its Single Family guarantee business to subprime 

10 




loans. These disclosures contained blatantly false and misleading statements for the reasons 

described below. 

Since the 1990s, Freddie Mac Internally Categorized Loans 

As Subprime Or Subprime-Like As Part OfIts Loan Acquisition Programs 


And In Connection With Monitoring The Risk OfIts Portfolios 


31. As part of its loan acquisition and securitization process in the Single Family 

credit guarantee portfolio, Freddie Mac provided mortgage loan originators with a series of 

mortgage underwriting standards and/or automated underwriting software tools, including, since 

at least 1995, its proprietary automated underwriting system ("ADS") called "Loan Prospector." 

32. Loan Prospector generated a credit risk classification for each loan and was used 

to determine the terms on which a loan could be sold to Freddie Mac, including whether a loan 

could be sold to Freddie Mac without certain representations and warranties or without 

additional cost. 

33. During the Relevant Period, Loan Prospector generated a score that estimated the 

risk ofdefault for each loan. The scores, in tum, were grouped into six bands or "grades," which 

roughly corresponded to the level of anticipated risk: A+, AI, A2, A3,CI or C2. These grades 

were visible to Freddie Mac but not to mortgage loan originators or the public. Loans falling 

into the first four grades (A+, AI, A2 and A3) were designated "Accept Loans." Loans falling 

into the bottom two grades (CI and C2) were designated "Caution Loans." 

34. A loan designated as an Accept Loan permitted automated underwriting, reduced 

documentation and generally did not require originators to make special representations and 

warranties regarding the credit quality of the loan because Loan Prospector had already 

determined the loan was creditworthy. 

35. By contrast, Loan Prospector's designation of a loan as a Caution Loan meant that 

the system had identified concerns about the loan's creditworthiness. Originators were required 

11 




manually to underwrite Caution Loans, produce additional documentation regarding the 

borrower's creditworthiness, and make special representations and warranties regarding the 

credit quality of the loan. Caution Loans had mUltiple higher risk characteristics, such as high 

LTV ratios, borrowers with lower FICO scores, unusual property types or high debt-to-income 

ratios, and were recognized within Freddie Mac as loans that had a high risk of default relative to 

Accept Loans. Internally at Freddie Mac, Caution Loans were considered to be equivalent to 

sUbprime. 

36. On October 8, 1997, Freddie Mac publicly announced the roll-out of its "A-minus 

Program" at the Mortgage Bankers Association's <l:nnual meeting in New York .. "A-minus" was 

a term commonly used in the marketplace to refer to subprime loans. The next day, the American 

Banker published an article reporting on Freddie Mac's announcement and observed that 

"Freddie Mac is diving into subprime lending, ending months ofspeculation over how deeply the 

agency would go into the burgeoning market." Under the A-minus Program, Caution Loans that 

received a score of C 1 in Loan Prospector could be sold to Freddie Mac on the same terms as an 

Accept Loan with the payment of an additional fee by the seller. As noted by the American 

Banker article, the A-minus Program was publicly perceived as expanding Freddie Mac's 

exposure to sUbprime loans. 

37. Sales and marketing materials prepared for Single Family as part ofthe roll-out of 

the A-minus Program advised the Company's sales force that "Freddie Mac is expanding the 

range of loans it will purchase, including many loans in the A-minus sector of the market. Now 

lenders can use Loan Prospector to provide less costly, more efficient financing to borrowers 

with weaker credit." In describing the A-minus sector of the housing market, the sales and 

12 




marketing materials stated that "A-minus loans account for approximately 50 percent of 

subprime loans." 

38. In or about November 1998, in connection with the A-minus Program, Freddie 

Mac revised its Credit PoliCy Book as it related to the broader credit risk parameters and 

processes under which Freddie Mac was willing to guarantee loans in Single Family. The 

memorandum authorizing these revisions described mortgages eligible for the A-minus Program 

as "[m ]ortgages that generally comprise the first and second tier of subprime lender risk grades" 

and "mortgages generally includ[ing] 54% to 56% ofthe subprime market." Mortgage loans that 

received a Cl rating in Loan Prospector were described as having a credit quality of "A-minus," 

and those that received a C2 rating in Loan Prospector were described as having a credit quality 

of "sub prime." Bisenius signed and approved the revisions to the Credit Policy Book. 

39. In or about 1999, at the request' of Bisenius, Freddie Mac developed an 

econometric model called "Segmentor;" which enhanced Loan Prospector's ability to identify 

subprime loans prior to Freddie Mac guaranteeing those loans. The model scored mortgage 

loans on a variety of credit risk characteristics, such as debt ratio, FICOs, and time since most 

recent foreclosure, and generated a "subprime score." If the Segmentor "subprime score" fell 

below certain thresholds or had certain characteristics such as a high debt-to-income ratio, the 

loan received an automatic rating ofCl or C2 in Loan Prospector. 

40. Loan Prospector developed and evolved over time, but, the intem~l view that 

Caution Loans (Cl and C2)were synonymous with subprime or were "subprime-like" did not 

change. 

41. Freddie Mac's exposure to Caution Loansup through the Relevant Period steadily 

rose. As of the end of2004, Freddie Mac guaranteed the principal and interest on Caution Loans 

13 




in the amount of approximately $70 billion. From the first quarter of 2005 through the second 

quarter of 2008, Freddie Mac increased its total exposure to Caution Loans from approximately 

$73 billion to $233 billion, with the largest annual increase betWeen the fourth quarter of 2006 

(approximately $138 billion) and the fourth quarter of 2007 (approximately $216 billion). While 

Caution Loans were internally referred to as subprime, they were not disclosed publicly as part 

of the Company's Single Family subprime exposure. 

Freddie Mac Acquires Increasingly Risky Loans to Maintain Market Share 

42~ In or about the early 2000s, Freddie Mac and the Federal National Mortgage 

Association ("Fannie Mae") began to lose market share in mortgage loan securitizations to new 

competitors, including Wall Street banks. Mortgage originations had shifted from traditional 

fixed-rate loans to higher risk loan products with features such as adjustable rates ("ARMs"), 

interest-only payments, and redu,ced documentation requirements. 

43. By 2005, the Freddie Mac and Fannie Mae combined share of the market for 

mortgage securitizations had fallen to approximately 42 percent from a high of nearly 60 percent 

in 2000. Within that shrinking GSE share of the market, Freddie Mac also had been steadily 

losing market share to Fannie Mae. Freddie Mac responded to this loss ofmarket share by 

broadening its credit risk parameters to purchase and guarantee increasingly risky mortgages in 

its Single Family guarantee portfolio between approximately 2004 and 2007. 

44. For example, in or abortt late 2004, despite contrary advice from the Company's 

senior credit risk experts, Syron authorized Freddie Mac's continued purchases of a particularly 

risky type of mortgage commonly referred to in the industry as a "No Income, No Asset" loan or 

"NINA." NINAs were widely. considered to be particularly risky because they did not require 

any verification of a borrower's income or assets. Freddie Mac's senior credit risk officers 

14 




advocated to Syron that the Company stop guaranteeing NINA mortgages, in part, because of the 

high risk of default associated with such mortgages within their first year and because of 

perceived reputation risk to the Company. Syron rejected the advice, in part due to his desire to 

improve Freddie Mac's market share. 

45. Another example of increased risk taking occurred in or about 2005, when the 

Company embarked on a business strategy called Touch More Loans. Touch More Loans was 

designed to gain back lost market share by granting exceptions to Freddie Mac's existing credit 

policy to permit the acquisitiori and guarantee of riskier loans that were being originated in the 

marketplace. Cook led the Touch More Loans strategy. 

46. Coinciding with the introduction of Touch More Loans, the Company embarked 

on two additional initiatives to expand market share: 

a. First, in February 2005, Freddie Mac introduced a new residential 

mortgage product called Home Possible, which was geared to low-to-moderate income 

b<?rrowers (such as teachers, law enforcement personnel, healthcare workers and the military) 

and permitted lower down payments or higher loan-to-value ratios, among other higher credit 

risk characteristics, than had previously been allowed. Loans acquired through Home Possible 

were internally considered to be "subprime-like." 

b.· Second, on August 17, 2005, Freddie Mac internally issued a policy 

statement authorizing increased guarantees of a Fannie Mae proprietary product called 

"Expanded Approval" (or "EA") loans. As of December 2004, Freddie Mac guaranteed the 

principal and interest on EA loans in the approximate amount of $69 million. From the first 

quarter of 2005 through the second quarter of 2008, Freddie Mac increased its total exposure to 

EA loans from approximately $1 billion to $11 billion (with the largest increase of 

15 




approximately. $8 billion coming between the fourth quarter of 2006 and the fourth quarter of 

2007). EA loans were considered to have, at best, credit risk equivalent to A-minus loans and 

were internally described in this policy statement as (1) "appear[ing] to be subprime in nature[;]" 

and (2) "high risk ... since performance compares to subprime products." In fact, on August 20, 

2007, in an email that was sent to Cook and others, Bisenius described EA loans as "clearly 

subprime." 

47. From 2005 forward, Freddie Mac also substantially increased its exposure to 

loans from a subprime lending division of Countrywide Financial Corporation ("Countrywide") 

known as Full Spectrum Lending. Between 1999 and 2004, Freddie Mac acquired loans from 

Countrywide's Full Spectrum Lending division in the aggregate amount of approximately $279 

million. From 2005 through 2008, Freddie Mac acquired approximately $12 billion of Full 

Spectrum Lending loans (with the largest increase between 2006 (approximately $3 billion) and 

2007 (approximately $6 billion)). 

48. The approximate aggregate amount (in billions of u.S. dollars), measured by 

unpaid principal balance, of C1, C2 and EA loans in Single Family at the end of the following 

periods was as follows: 

$39 $35 $74 $75 $1,220 6% 

16 




$42 $37 $79 $80 $1,244 6% 

$47 $39 $86 $87 $1,274 7% 

$53 $42 $95 $97 $1,318 7% 

$60 $47 $107 $109 $1,360 8% 

$64 $50 $114 $116 $1,387 8% 

$71 $54 $125 $127 $1,428 9% 

$78 $60 $138 $141 $1,467 10% 

$89 $67 $156 $160 $1,528 10% 

$100 $77 $177 $183 $1,586 12% 

$110 $88 $198 $206 $1,642 13% 

$118 $98 $216 $227 $1,692 13% 

$123 $104 $227 $238 $1,739 14% 

$127 $106 $233 $244 $1,784 14% 

17 




Freddie Mac's Acquisition and Guarantee Of 

,Loans From Other AUSs Increases its Subprime Exposure 


49. Beginning in or about 2004, in addition to purchasing and guaranteeing the 

payment of principal and interest on loans that had been underwritten using Loan Prospector, 

Freddie Mac increasingly purchased and guaranteed mortgage loans underwritten through other 

proprietary AUSs. For example, Freddie Mac purchased and guaranteed mortgage loans 

underwritten using AUSs such as Fannie Mae's Desktop Underwriter and Countrywide's 

CLUES. 

50. To assess the relative risk ofmortgages underwritten through other AUSs, Freddie 

Mac used an internal modeling system called LP Emulator to approximate how the loans would 

have scored under Loan Prospector. LP Emulator used the same scoring metric as Loan 
. . 

Prospector - Accept Loans (A+, AI, A2 and A3) and Caution Loans (Cl and C2) - but, LP 

Emulator was run on a loan after Freddie Mac had agreed to guarantee the loan. Using LP, 

Emulator, Freddie Mac could identify a loan that would have been designated as a Caution Loan 

if underWritten through Loan Prospector, but had instead been guaranteed on terms equivalent to 

an Accept Loan after being underwritten through another AUS. Loans falling into this category 

were deemed to have a "defect." Beginning in 2004, Freddie Mac tracked the "defect rate" of 

loans acquired throughotherAUSs. 

51. In the second quarter of2003, before Freddie Mac increased its purchases through 

AUSs other than Loan Prospector, Freddie Mac's aggregate defect rate was approximately 1 

percent. Freddie Mac's purchase and guarantee of mortgages underwritten through other AUSs 

increased to the' point where it was acquiring fewer loans through Loan Prospector 

(approximately 27 percent) than through Fannie Mae's Desktop Underwriter (approximately 31 

percent). The defect rate rose dramatically, and in August 2007, the aggregate defect rate 

18 




reached a historical high of approximately 22 percent Approximately 22 percent of the loans 

Freddie Mac purchased and guaranteed that were underwritten through other AUSs therefore met 

the Freddie Mac internal definition of sUbprime. 

Defendants Were Aware ofSubprime Exposure in Single Familv 

52. On May 25, 2006, Cook attended a meeting of the Board's Finance and Capital 

Deployment Committee. Prior to that meeting, she received a memorandum authored by the 

Company's then-Chief Enterprise Risk Officer, highlighting for her and the other attendees that 

"[t]he credit parameters of new single-family purchases continue to decline. In order to support 

our business strategies to increase customer focus, build market share and meet affordable goals, 

we continue to expand credit policies and increase purchases ofhigher-risk products." 

53. Six days later, on May 31, 2006, Syron and Cook attended a meeting of the 

Board's Mission, Sourcing and Technology Committee,. where it was highlighted that the Touch 

More Loans strategy had resulted in significantly greater credit risk to the Company. 

Specifically, a presentation made by a senior credit risk officer. stated that, pursuant to Touch 

More Loans, Freddie Mac was "expanding our appetite" for, among other things, risk layering of 

lower FICOs, higher LTV's, other AUSs, and other high-risk loans. To the extent it was not 

already clear to them prior to the meeting, Syron and Cook also were infomied that the Company 

was loosening its underwriting standards through its implementation of the Touch More Loans 

strategy by, among other things, increasing exceptions to the Company's existing credit policy­

exceptions that had almost tripled between 2004 and 2005, from 286 in 2004 to 770 in 2005. 

54. . On November 30, 2006, Bisenius' staff informed him that loans sold to Freddie 

Mac through Fannie Mae's Desktop Underwriter were contributing disproportionately to the 

Company's increasing defect rate and included loans that were equivalent to subprime. 

Specifically, Bisenius' staff told him and others that loans from Fannie Mae's Desktop 

19 




Underwriter "have a much higher percent of defect loans, loans that are subprime-like, loans that 

have very low FICOs" in referring to loans that contributed to the increasing "defect rate" at the 

Company. 

55. On December 7, 2006, Syron and Cook attended a meeting of the Mission; 

Sourcing and Technology Committee of the Board of Directors. Attached toa presentation 

prepared for that meeting was a glossary of terms, the purpose of which was to inform the Board 

of how management used certain terms. The glossary defined "Subprime Mortgages" as follows: 

There is no longer a clear-cut distinction between prime and 
subprime mortgages as the mortgage market has evolved to 
provide for mortgage credit to a full range of borrowers with a 
variety of products and processes. Subprime mortgages generally 
are mortgages that involve elevated credit risk. Whereas prime 
loans are typically made to borrowers who have a strong credit 
history and can demonstrate a capacity to repay their loans, 
subprime loans are typically made to borrowers who have a 
blemished or weak credit history and/or a weaker capacity to 
repay. 

Ultimately, during the Relevant Period, the Company's public subprime disclosures were 

inconsistent with how management characterized its use of the term "subprime" for its own 

Board members. 

56. Beginning on or about January 18, 2007, Freddie Mac's ERMC began to report 

on Freddie Mac's exposure to subprime loans. Attendees of the January 18 ERMC meeting­

including Syron and Cook - were told that "[l]oan level ri~k grades are blurred as capital retreats 

in [the] subprime market, increasing the likelihood that we· are already purchasing subprime 

loans under existing acquisition programs." Accordingly, this presentation reinforced to 

attendees of this meeting that it was likely that Freddie Mac already was purchasing loans with 

credit risk characteristics similar to loans originated by self-identified subprime originators, and 

that market participants would consider to be subprime loans. The ERMC met monthly after this 

20and Syron and Cook generally attended ERMC meetings. Going forward, the ERMC reports 

consistently contained this same warning. Syron typically received the ERMC reports in 

advance ofthe meetings and generally reviewed them prior to the meetings. 

57. On February 6 and 7, 2007, Syron gathered his Senior Executive Team for a two-

day offsite planning meeting in Florida to discuss Freddie Mac's strategic direction. Cook 

attended as a member of the SET, as did Bisenius (who was invited even though he was not 

formally a member of the SET). At least one presentation was devoted to Freddie Mac's role in 

the subprime market. That presentation highlighted for attendees· the following regarding 

Freddie Mac's exposure to subprime: 

• 	 Freddie Mac "already purchase[s] subprime-like loans ... but with 

considerably lower fees[,]" which attendees generally understood meant 

that Freddie Mac was purchasing loans with credit risk and expected 

default rates similar to the loans originated by a small handful of 

institutions that self-identified as subprime originators. 

• 	 The "[w]orst 10% of [the Single Family] Flow Business" - which 

comprised approximately 70 percent of Single Family purchases in 2006 ­

were "subprime-like loans." 

• 	 Freddie Mac was purchasing greater percentages of "risk layer[ed]" loans, 

defined as loans consisting oftotal LTV greater than 90 percent and FICO 

scores less than 680, which was "leading to more 'Cautions'" and a higher 

"[ d]efect rate." 

• 	 '''Caution' loans have greater default costs ... resulting in higher expected 

losses[.]" 

21 




58. On February 17, 2007, Syron received and responded to an email from Bisenius 

regarding a new "Subprime Project." Bisenius told Syron and others that an expanded role in the 

subprime market only made sense if Freddie Mac was adequately compensated for the risk, and 

reminded Syron and others that there were certain categories of loans, including "free cautions," I 	 . 
that the Company already purchased and did not receive adequate compensation for the risk . 

. 59. 	 On March 2 and 3, 2007, Syron, Cook and Bisenius attended a two-day Board of 

Directors meeting, a significant portion of which was dedicated to the Company's strategic 

direction in subprime. Cook was one of the presenters at the Board meeting and she, along with 

the then:..Chief Operating Officer, presented similar information to the Board as contained in the 

February 6 and 7 offsite meeting. Specifically, Cook and the then-Chief Operating Officer led a 

discussion at the meeting concerning a slide in which the "worst 10% of [Freddie Mac's] Flow 

Business" was listed as an example of "subprime-like loans" the Company already purchased, 

and in which they conveyed: 

• 	 "We already purchase subprime-like loans to help achieve our HUD goals ... 

[b Jut we receive considerably lower fees than subprime loans would fetch in the 

market." 

• 	 . "Some ofour current purchases have subprime-like risk[.]" 

• 	 "[F]ixed-rate subprime doesn't look all that different than the bottom of our 

purchases, with returns five to six times as great, not universal for all subprime." 

60. 	 In addition to receiving at least the SET and Board materials referred to above in 

. Paragraphs 57 and 59 which highlighted, among other things, that a material portion 	of the 

Single Family business was "subprime-like," and monthly ERMC reports which repeatedly 

warned of the increasing risk that Freddie Mac was buying subprime loans (and showed data 

22 




suggesting that the credit risk of the principal and interest of loans to be securitized by Freddie 

Mac was increasing to historic proportions), Syron also was aware at least as early as February 

17,2007 of Freddie Mac's efforts to develop a model subprimeoffering targeted at customers of 

self-identified sUbprime originators. 

61. By at least early April 2007, Bisenius transitioned into a new role at Freddie Mac, 

where he was placed in charge of developing a Model Subprime Offering that was later publicly 

known as a product called "Freddie Mac SafeStep Mortgages," to give subprime borrowers a 

more consumer-friendly mortgage option. 

62. Although the Model Subprime Offering purportedly had been developed as an 

alternative to subprime products, Freddie Mac personnel, including Syron, Cook and Bisenius, 

recognized that it actually competed with existing programs that Freddie Mac had internally 

recognized as "subprime," "otherwise subprime," or "subprime-like." 

63. On April 12, 2007, Bisenius proposed abolishing Freddie Mac's A-minus 

Program - which was long-recognized as subprime ~ "so as to not canabalize [sic] our [Model 

Subprime Offering]." 

64. By mid-April 2007, Bisenius also knew that the credit characteristics of loans to 

be guaranteed under the Model Subprime Offering were similar to those of other existing Freddie 

Mac programs in addition to the A-minus Program, such as Home Possible and Fannie Mae's EA 

prograin, which he was well aware internally were perceived as programs that exposed Freddie 

Mac to subprime or subprime-like loans - as he had used those same descriptions for those 

programs. 

65. Bisenius regularly briefed Cook on the Model Subprime Offering. Cook 

requested these briefmgs to discuss the role of the Company's existing Single Family guarantee 

23 




programs relative to the Model Subprime Offering. At a briefing on April 20, 2007, highlighted· 

that there were "alignment" issues between the Model Subprime Offering loan:s and Freddie 

Mac's existing loan programs. 

66. On May 16, 2007, Bisenius sent an e-mail commenting on a set of 

recommendations regarding certain of Freddie Mac's current offerings as related to the Model 

Subprime Offering. In the email, Bisenius observed that the recommendations did not "address 

DU approves or Proprietary AUS approves that we think are subprime (ie., [sic] they would 

score Caution in LP) and therefore might compete with our model offering." 

67. On June 7, 2007, Cook and Bisenius attended a meeting of the Board's Mission, 

SOiIrcing and Technology Committee, where it was conveyed that: 

• 	 Certain higher risk loans sold to Freddie Mac through other AUSs were 

equivalent to subprime. 

it 	 Freddie Mac-securitized loans obtained through Fannie Mae's Desktop 

Underwriter had a "higher share of low FICO loans and subprime-like loans" 

relative to other AUS loans. 

• 	 Loans sold to Freddie Mac through Countrywide's CLUES were "particularly 

volatile" and, in particular, of those loans sourced through CLUES that were later 

scored by Freddie Mac's LP Emulator as "Caution," (called "defect loans" for 

their contributions to the "defect rate"), a high proportion of such loans were 

"subprime in nature." 

68. On or about June 11, 2007, Cook and others received an "Executive Summary" 

sponsored by Bisenius, that stated that the Model Subprime Offering would compete with 

existing loans the Company acquired and guaranteed such as "[Freddie Mac's] affordable 

24 




offerings like Home Possible and [Fannie Mae's] MyCommunityMortgage, as well as our LP 

Loan Prospector A-minus offering and [Fannie Mae's] newly revamped EA program." The 

Executive Summary also highlighted that "[ s ]ubprime mortgages are not considered unique in 

the industry. An analysis of Freddie Mac's existing products indicates our current A-minus 

offering has credit risk and product parameters (business terms) that match, and in some cases, 

are broader than those outlined in the proposed model Subprime offering." Cook attended the 

meeting ofthe New Products Committee where this Executive Summary was discussed. 

69. At the September 25,2007 ERMC meeting, both Syron and Cook were told that 

the defect rate of purchases, which had been steadily rising, had increased from approximately 

13 percent at the end of June 2007, to 19 percent in July 2007, to approximately 22 percent in 

August 2007. The presentation highlighted for Syron and Cook that principal drivers of the 

defect rate were low FICOs and high LTVs. Syron and Cook were presented with similar facts 

at the October 23, 2007 ERMC meeting. 

70. Additionally, on September 26, 2007, Cook received a memorandum describing 

how the Model Subprime Offering would be positioned for marketing purposes. The 

memorandum noted that the Model Subprime Offering was consistent with Freddie Mac's 

"longer term corporate 'touch more loans' strategy to expand into adjacent markets" and that the 

offering would replace Freddie Mac's A-minus loan program.­

71. On November 27,2007, the ERMC distributed a packet of materials to Syron and 

Cook, among others. Although no meeting took place, the materials further informed Syron and 

Cook of the stresses on Single Family as a result of Freddie Mac's acquisition of riskier loans. 

Specifically, the materials highlighted that the "2007 book performance is worse than in 2006, 

both exhibiting much higher serious delinquency rates than other book years;" that expected 

25 




default costs for October 2007 "are 76% higher than in 2006;" and that the defect rate had risen 

to approximately 20 percent. 

72. On December 18, 2007, Syron and Cook attended an ERMC meeting, which 

highlighted for them the deterioration of credit quality for the largest portion of Freddie Mac's 

Single Family guarantee portfolio. According to the report used at that meeting, the defect rate 

for the third quarter of 2007 had increased to approximately 20 percent, up from approximately 

16 percent in the second quarter of 2007 and approximately 13 percent in the first quarter of 

2007. Similar facts were highlighted for Syron and Cook at meetings of the ERMC on January 

23,2008 

73. On January 23,2008, Syron and Cook attended another ERMC meeting, during 

which they were told that the defect rate on the largest part of the business was at approximately 

20 percent in November, still at historically high levels. Syron and Cook also were told that EA 

loans accounted for approximately 19 percent of expected default costs in Single Family. 

Similar trends were highlighted for Syron and Cook at ERMC meetings on February 19,2008, 

March 25, 2008 and April 29, 2008 

Svron, Cook and Bisenius Were Responsible (or Freddie Mac's Disclosures 

74. Syron, Cook and Bisenius each made, or aided and abetted Freddie Mac or each 

other in making, false and misleading credit risk disclosures regarding sUbprime loans in the· 

Company's Single Family guarantee portfolio as a result of their authority over, or knowing and 

substantial assistance in, such disclosures. 

75. As CEO of Freddie Mac, Syron certified the Information Statement and Annual 

Report to Stockholders for the Fiscal Year Ended December 31, 2006 (the "2006 Information 

Statement"), the Financial Report for the Three and Six months Ended June 30, 2007 (the "2Q07 

Infonnation Statement Supplement"), the Financial Report for the Three and Nine Months Ended 

26 




September 30, 2007 (the "3Q07 Information Statement Supplement"), the Information Statement 

and Annual Report to Stockholders for the Fiscal Year Ended December 31, 2007 (the "2007 

Information Statement"), the Financial Report for the Three Months Ended March 31, 2008 (the 

"IQ08 Information Statement Supplement"), and the Form 10-Q for the Quarterly Period Ended 

June 30, 2008 (the "2Q08 Form I O-Q"). The certifications stated, among other things: 

• 	 "Based on my knowledge, this [Report] does not contain any untrue statement of 
a material fact or omit to state a material fact necessary to make the statements 
made, in light of the circumstances under which such statements were made, not 
misleading with respect to ~he period covered by this [Report.]" 

• 	 "Based on my knowledge, the consolidated financial statements, and other 
financial information included in this [Report], fairly present in all material 
respects the financial condition, results of operations and cash flows of Freddie 
Mac as of, and for, the periods presented in this [Report]." 

76. . Cook sub-certified the 2006 Information Statement, the 2Q07 Information 

Statement Supplement, the 3Q07 Information Statement Supplement, the 2007 Information 

Statement, the lQ08Information Statement Supplement, and 2Q08 Form 10-Q. Bisenius sub-

certified the 2006 Information Statement, the 2Q07 Information Statement Supplement and the 

2Q08 Form 10-Q. Those sub-certifications stated, among other things: 

• 	 "Based upon my role and responsibilities, I have reviewed the appropriate 
sections of the [Report]." 

• 	 "I have consulted with such members of my staff and others whom I thought 
should be consulted in connection with my execution ofthis attestation." 

• 	 "Based upon my role and responsibilities, but limited in all respects to the matters 
that come to my attention in fulfilling my responsibilities as [CBO (Cook) or SVP 
for Credit Policy (Bisenius)], I hereby certify to the best of my knowledge and 
belief that:" 

• 	 "The [Report] does not contain any untrue statement of a material fact or omit to 
state a inaterial fact necessary to make the statements made, in light of the 
circumstances under which such statements were made, to not be misleading." 

• 	 "The financial statements and other financial information included in the [Report] 
fairly present, in all material respects, the financial condition and results of 

27 




operations, and cash flows of the Company as of and for the periods presented in 
the [Report]." 

77. Cook and Bisenius each sub-certified to the accuracy of Freddie Mac's subprime 

disclosures in those Information Statements and Information Statement Supplements described 

above in Paragraph 76 based upon their respective roles and responsibilities at the Company. 

78. As EVP for Investments and Capital Markets and CBO, during the Relevant 

Period, Cook specifically had responsibility over the Company's Single Family business, 

including the Company's subprime loan exposure as it related to the credit risks associated with 

that business. 

79. As SVP of Credit Policy' and Portfolio Management and SVP of Single Family 

Credit Guarantee, during a portion of the Relevant Period, Bisenius had direct responsibility over 

the credit risks, including subprime loan exposure, associated with the Single Family business. 

During that portion of the Relevant Period that Bisenius was working on "special projects" for 

Cook, including the Model Subprime Offering, Bisenius continued to carry on certain 

responsibilities as the SVP for Credit Policy and Portfolio Management, and sub-certified to 

those Information Statements and Information Statement Supplements described above in 

Paragraph 76. In addition to sub-certifying these disclosures, Bisenius served on the Disclosure 

Committee that considered the 2Q08 Form 10-Q. 

80. Given their respective roles and responsibilities and the importance of the sub-

certifications to the Company's disclosure process, Cook and Bisenius substantially assisted in 

the making of the Company's false and misleading statements by validating the accuracy of the 

Company's subprime disclosures, which they knew or were reckless in not knowing were false. 

28 




.; .. '-":- ::.:......-:. ::..::,_: -~ " ...',. _. ___ ., .... ~~._ ____ ... "'~ :·_·:_.~_~_:_v 

Freddie Mac's Subprime Disclosures 

81. On June 28, 2006, in its Infonnation Statement and Annual Report to 

Stockholders for the fiscal year end December 31, 2005 (the "2005 Infonnation Statement"), 

Freddie Mac publicly quantified for the first time the exposure of its Single· Family portfolio to 

subprime loans. The Company represented that: "At December 31, 2005 and 2004; we 

guaranteed $2.3 billion and $4.5 billion of securities backed by subprime mortgages which 

constituted less than one percent ofour Total mortgage portfolio, respectively." 

82. The Company also noted that it participated in thesubprime segment in two other 

ways: (i) "our Retained portfolio makes investments in non-Freddie Mac mortgage-related 

securities that were originated in this market segment" and (ii) ''we made investments through 

our Retained Portfolio in some of the structured securities we issue with underlying collateral 

that is subprime." 

83. During the Relevant Period, Freddie Mac continued to make public disclosure of 

its Single Family subprime exposure. However, the disclosures during the Relevant Period were 

consistently materially false and misleading. 

Year-End 2006 

84. On March 23, 2007, in its 2006 Infonnation Statement, Freddie Mac disclosed the 

following regarding it subprime exposure in Single Family: 

Participants in the mortgage market often characterize loans based 
upon their overall credit quality at the time of origination, 
generally considering them to be prime or subprime. There is no 
universally accepted definition of subprime. Thesubprime 
segment of the mortgage market primarily serves borrowers with 
poorer credit payment histories and such loans typically have a mix 
of credit characteristics that indicate a higher likelihood of default 
and higher loss severities than prime loans. Such characteristics 
might include a combination of high loan-to-value ratios, low 
FICO scores or originations using lower underwriting standards 
such as limited or no documentation of a borrower's income. The 

29 




subprime market helps certain borrowers by increasing the 
availability ofmortgage credit. 

While we do .not characterize the single-family loans underlying 
the PCs and Structured Securities in our credit guarantee portfolio 
as either prime or subprime,·we believe that, based on lender-type, 
underwriting practice and product structure, the number of loans 
underlying these securities that are subprime is not significant. 
Also included in our credit guarantee portfolio are Structured 
Securities backed by non-agency mortgage-related securities where 
the underlying collateral was identified as being subprime by the 
original issuer. At December 31, 2006 and 2005, the Structured 
Securities backed by subprime mortgages constituted 
approximately 0.1 percent and 0.2 percent, respectively of our 
credit guarantee portfolio. 

The 2006 Information Statement also disclosed that Freddie Mac held, at December 31, 2006 and 

2005, in its Retained Portfolio - which is distinct from the Single Family guarantee portfolio ­

. "approximately $124 billion and $139 billion, respectively, of non-agency mortgage-related 

securities backed by subprime loans." 

85. The statement in the 2006 Information Statement that Freddie Mac's sUbprime 

exposure in Single Family was "not significant" was materially false and misleading because it 

communicated the misleading impression that after considering a mix of credit risk 

characteristics to assess its exposure to subprime loans, Fn,ddie Mac determined that its Single 

Family guarantee portfolio had no significant exposure. 

86. Contrary to its disclosure, at December 31, 2006, Freddie Mac's single-family 

credit guarantee portfolio consisted of approximately $141 billion of C1, C2 and EA loans ­

loans that Single Family internally described as "subprime," "otherwise subprime" or "subprime­

. like loans" -	 which represented approximately 10 percent of Freddie Mac's single-family credit 

guarantee portfolio. 

87. Syron certified, and Cook and Bisenius each signed sub-certifications, for the 

2006 Information Statement even though they knew, or were reckless in not knowing, that the 

30 




disclosure regarding exposure. to subprime . loans contained in the 2006 Information Statement 

was materially false and misleading. 

88. The disclosures contained in Freddie Mac's 2006 Information Statement were 

incorporated by reference into, among other things, Freddie Mac's April 10, 2007 Offering 

Circular, pursuant to which Freddie Mac issued $500 million of 5.66 percent non-cumulative 

perpetual preferred stock. 

Syron Makes a Materially False and Misleading Statement Regarding 
Freddie Mac's Exposure to Subprime Loans on an EarningsCon(erence Call 

89. The same day that Freddie Mac published the 2006 Information Statement, the 

Company's senior executives held an earnings conference call. Syron and others participated in 

the call. On the call, Syron had the following question-and-answer exchange with a research 

analyst: 

Q: "Seems like over the last couple of years that subprime 
market has really replaced the FHA product. You and to some 
degree Fannie Mae both have abstained from those higher LTV 
products...." 

A: "Fortunately, at least speaking for ourselves as a GSE, we 
as you know. weren't involved in underwriting much of that 
business any of that business directly. Having said all of that ... 
[w]e are working fairly intensely right now on how we can develop 
products in the subprime space that [are] b()th shareholder and 
consumer friendly ... we're doing it on a pretty accelerated basis." 

90. Syron's statement that, with respect to the subprime market, Freddie Mac was not 

"involved in underwriting much of that business any of that business directly" was materially 

false and misleading. Furthermore, his answer reinforced the already misleading impression that 

Freddie Mac did not participate in the "subprime space," but was exploring ways to develop 

products for that market. 

31 




Syron and Cook Make Materially False and Misleading Statements Regarding 
Single Family's Exposure to Subprime in Speeches at Investor Conferences 

91. Less than two months after the 2006 Infonnation Statement was issued, Syron and 

Cook each spoke at separate investor conferences and reiterated the misleading assertion that 

Single Family's exposure to subprime loans was not significant. 

92. On May 14, 2007, Syron spoke in New York at the UBS Global Financial 

Services Conference (the "UBS Conference") and stated: "As we discussed in the past, at the 

end of 2006, Freddie had basically no subprime exposure in our guarantee business, and about 

$124 billion of AAA rated subprime exposure in our retained portfolio." 

93. Three days later, on May 17, 2007; Cook gave a speech at the Lehman Brothers 

10th Annual Financial Services Conference (the "Lehman Conference") in London and stated: 

"As we discussed in the past, at the end of 2006, Freddie had basically no subprime exposure in 

our guarantee business, and about $124 billion of AAA rated subprime exposure in our retained 

portfolio." 

94. Each ·of Syron's statement at the UBS Conference quoted in Paragraph 92 and 

Cook's statement at the Lehman Conference quoted in Paragraph 93 was materially false and 

misleading because the statements reinforced the misleading impression that Freddie Mac had 

little or no exposure to subprime loans in its Single Family guarantee business and was not in the 

"subprime space." 

95. Prior to these speeches, Syron and Cook both knew or were reckless in not 

knowing that it was false and misleading to claim the Company "had basically no subprime 

exposure." The then-head of External Reporting and others at Freddie Mac recognized that this 

statement was inaccurate. 

32 




96. Prior to Syron and Cook giving these speeches, Freddie Mac's then-head of 

External Reporting reviewed a draft of Syron's speech and warned Bisenius, among others, that 

it would be false to state that Freddie Mac has basically no exposure to subprime: 

We need to be careful how we word this. Certainly our portfolio 
includes loans that under some definitions would be considered 
subprime. . .. We should reconsider making as sweeping a 
statement as we have "basically no subprime exposure." 

97. Bisenius· did not respond to the concern raised by the then-head of External 

Reporting or otherwise seek to correct the speeches before they were given. He reported to Cook 

at the time. 

First and Second Quarters o{2007 

98. On June 14,2007, Freddie Mac published its financial report for the three months 

ended March 31, 2007 (the "IQ07 Information Statement Supplement"), which appended, 

among other things, a June 14 press release in which Syron suggested that Freddie Mac was just 

starting to become exposed to sUbprime: "I'm particularly proud that our company took a 

leadership role in the subprime mortgage market, announcing new underwriting standards and 

products and committing to purchase up to $20 billion mortgages to support subprime 

borrowers." 

99. Freddie Mac did not quantify its subprime exposure in its lQ07 Information 

Statement Supplement but incorporated by reference the misleading subprime disclosure . 

contained in its 2006 Information Statement. 

100. The disclosures contained in Freddie Mac's 2006 Information Statement and its 

1 Q07 Information Statement Supplement were incorporated by reference into, among other 

things, Freddie Mac's July 17, 2007 Offering Circular, pursuant to which Freddie Mac issued 

$500 million of 6.02 percent non-cumulative perpetual preferred stock. 

33 



10l.0n August 30, 2007, Freddie Mac published its 2Q07 Information Statement 

Supplement, which purported to disclose Freddie Mac's total Single Family exposure to 

subprime: 

Participants in the mortgage market often characterize single­
family loans based upon their overall credit quality at the time of 
origination, generally considering them to be prime or subprime. 
There is no universally accepted definition of sUbprime. The 
subprime segment of the mortgage market primarily serves 
borrowers with poorer credit payment . histories and such loans 
typically have a mix of credit characteristics that indicate a higher 
likelihood of default and higher loss severities than prime loans. 
Such characteristics might include a combination of high loan-to­
value ratios, low credit scores or originations using lower 
underwriting standards such as limited or no documentation of a 
borrower's income. The subprime market helps certain borrowers 
by broadening the availability ofmortgage credit. 

We estimate that approximately $2 billion, or 0.1 percent, and $3 
billion, or 0.2 percent,· of loans underlying our single-family 
mortgage portfolio, at June 30, 2007 and December 31, 2006, 
respectively, were classified as subprime mortgage loans. 

The 2Q07 Information Statement Supplement also disclosed that, at June 30, 2007 and 

December 31, 2006, Freddie Mac held in its Retained Portfolio - which is distinct from the 

Single Family guarantee portfolio - "approximately $119billion and $124 billion, respectively, 

of non-agency mortgage-related securities backed by subprime loans." 

102. The statement in Freddie Mac's 2Q07 Information Statement Supplement 

concerning Single Family's exposure to subprime in it guarantee portfolio was materially false 

and misleading. It communicated the misleading impression that, after considering a mix of 

credit risk characteristics to assess its exposure to subprime loans, Freddie Mac determined that 

its Single Family guarantee portfolio included only $2 billion, or 0.1 percent, of subprime loans 

as ofJune 30, 2007. 

34 




:-:<';:- -.. - .'.- ... 

103. Contrary to its disclosure, as of June 30, 2007, Freddie Mac's Single Family 

guarantee portfolio consisted of more than $182 billion of C1, C2 and EA loans - loans 

internally described as "subprime," "otherwise subprime" or "subprime-like loans" - which 

represented approximately 1 I percent of the Single Family credit guarantee portfolio. 

104. In July 2007, in between the publication of Freddie Mac's lQ07 and 2Q07 

Information Statement Supplements, Cook was involved in developing the Company's definition 

of subprime for disclosure purposes. 

105. Syron certified and Cook and Bisenius each sub-certified the2Q07 Information 

Statement Supplement even though they knew or were reckless in not knowing that the 

Statement was materially false and misleading. 

106. The di~closures contained in Freddie Mac's 2006 Information Statement and its 

2Q07 Information Statement Supplements were incorporated by reference into,· among other 

things, Freddie Mac's September 25, 2007 Offering Circular, pursuant to which Freddie Mac 

issued $500 million of 6.55 percent non-cumulative perpetual preferred stock. 

Third Quarter 0(2007 

107. On November 20,2007, Freddie Mac published its 3Q07 Information Statement 

Supplement, which purported to disclose Freddie Mac's total Single Family exposure to 

subprime: 

Participants in the mortgage market often characterize single­
family loans based upon their overall credit quality at the time of 
origination, generally considering them to be prime or subprime. 
There is no universally· accepted definition of subprime. The 
subprime segment of the mortgage market primarily serves 
borrowers with poorer credit payment histories and such loans 
typically have a mix of credit characteristics that indicate a higher 
likelihood of default and higher loss severities than prime loans. 
Such characteristics might include a combination of high loan-to­
value ratios, low credit scores or originations using lower 
underwriting standards such as limited or no documentation of a 

35 




borrower's income. The subprime market helps certaIn borrowers 
by broadening the availability ofmortgage credit. 

We estimate that approximately $5 billion and $3 billion of loans 
underlying our Structured Transactions at September 30, 2007 and 
December 31, 2006, respectively, were classified as subprime 
mortgage loans. 

The 3Q07 Information Statement Supplement also disclosed that, at September 30, 2007 and 

December 31, 2006, Freddie Mac held in its Retained Portfolio - which is distinct from the 

Single Family guarantee portfolio - "approximately $105 billion and $124 billion, respectively, 

ofnon-agency mortgage-related securities backed by subprime loans." 

108. The statement in Freddie Mac's 3Q07 Information Statement Supplement 

concerning Single Family's exposure to subprime in its guarantee portfolio was materially false 

and misleading. It communicated the misleading impression that, after considering a mix of 

credit risk characteristics to· assess its exposure to subprime loans, Freddie Mac had determined 

that its Single Family guarantee portfolio included only $5 billion of subprime loans as of 

September 30, 2007. 

109. Contrary to its disclosure, Freddie Mac's Single Family credit guarantee portfolio 

had exposure to approximately $206 billion of C1, C2 and EA loans - loans internally described 

as "subprime,""otherwise subprime" or "subprime-like loans" - which represented 

approximately 13 percent of the Single Family credit guarantee portfolio as of September 30, 

2007. 

110. Syron certified and Cook sub-certified the 3Q07 Information Statement 

Supplement even though they knew or were reckless in not knowing that the Statement was 

materially false and misleading. 

Ill. The disclosures contained in Freddie Mac's 2006 Information Statement and its 

3Q07 Information Statement Supplements were incorporated by reference into, among other 

36 




,~. ~,-~ :.-.':" ., ~ :". :".' -','." ~ .~. -':.-- .-~ "'~'- .. ". 

things, Freddie Mac's November 29, 2007 Offering Circular, pursuant to which Freddie Mac 

issued $6 billion offixed-to-floating rate non-cumulative perpetual preferred stock. 

Syron Makes a False and Misleading Statement Regarding 

Single Family's Exposure to Subprime at an Investor Conference 


112. On December 11, 2007, Syron spoke at a Goldman Sachs & Co. Financial 

Services Conference (the "GS Conference") in New York. At the GS Conference, Syron 

knowingly or recklessly made the false and misleading representation that Freddie Mac had not 

guaranteed any subprime loans in its Single Family guarantee business. He stated: 

Finally, we feel that our credit position in the current guarantee 
book, actually, is very near the best of the entire industry. A very 
major reason for this is that we have very low exposures to alt A in 
risk-layered mortgage products in the guarantee business. We 
didn't do any subprime business. . .. In terms of our insight into 
the subprime stuff, we didn't buy any sUbprime loans. I mean, we 
bought some securities, which we can go through, and we think 
we're fine in. We bought them for goal purposes. But we didn't 
buy in guarantee, essentially any subprime loans. So we weren't in 
that business. 

113. Syron's statement was materially false and misleading because his statement 

reinforced the misleading impression that Freddie Mac had little or no exposure to subprime 

loans in its Single Family guarantee business. Although Syron appears to have rationalized this 

false and misleading statement based on the fact that Single Family did not typically acquire 

loans from a small handful of institutions that self-identified as subprime originators, this 

rationale was not publicly disclosed and not shared with the audience as the basis for his 

sweeping public statement. In fact, as set forth above, at the time of Syron's statement, the 

Freddie Mac Single Family guarantee business consisted of approximately $206 billion of 

exposure to loans that Freddie Mac internally recognized were "subprime," "otherwise 

subprime" or "subprime-like." 

37 




Year-End 2007 

114. On February 28, 2008, Freddie Mac published its 2007 Information Statement, 

which purported to disclose Freddie Mac's total Single Family exposure to subprime: 

Participants in the mortgage market often characterize single­
family loans based upon their overall credit quality at the time of 
origination, generally considering them to be prime or subprime. 
There is no universally accepted definition of subprime. The 
subprime segment of the mortgage market primarily serves 
borrowers with poorer credit payment histories and such loans 
typically have a mix of credit characteristics that indicate a higher 
. likelihood of default and higher loss severities than prime loans. 
Such characteristics might include a combination of high LTV 
ratios, low credit scores or originations using lower underwriting 
standards such as limited or no documentation of a borrower's 
income. The subprime market helps certain borrowers by 
broadening the availability ofmortgage credit. 

While we have not historically characterized the single-family 
loans underlying our PCs and Structured Securities as either prime 
or subprime, we do monitor the amount of loans we have 
guaranteed with characteristics that indicate a higher degree of 
credit risk. See "Mortgage Portfolio Characteristics - Higher 
Risk Combinations" for further information. We estimate that· 
approximately $6 billion and $3 billion of loans underlying our 
Structured Transactions at December 31, 2007 and 2006, 
respectively, were classified as subprime mortgage loans. 

The 2007 Information Statement Supplement also disclosed that, as of December 31, 2007 and 

December 31, 2006, Freddie Mac held in its Retained Portfolio - which is distinct from the 

Single Family guarantee portfolio - "approximately $110 billion and $122 billion, respectively, 

of non-agency mortgage-related securities backed by subprime loans." Additionally, Freddie 

Mac announced that, to date, it had made purchase commitments of $207 million of mortgages 

on primary residence, single-family properties, pursuant to the commitment it announced in 

April 2007 to purchase up to $20 billion in fixed-rate and hybrid ARM products and also 

purchases of $43 billion of mortgages to borrowers that otherwise might have been limited to 

subprime products. 

38 




.---.",' .:<•..~::.:-~-:.~-.:<: .• 

115. The statement in Freddie Mac's 2007 Information Statement concerning Single 

Family's subprime exposure in its guarantee portfolio was materially false and misleading 

because· it communicated the misleading impression that, after considering a mix of credit risk 

characteristics· to assess its exposure to subprime loans, Freddie Mac had determined that its 

Single Family guarantee portfolio included only $6 billion of exposure to subprime loans as of 

December 31,2007. 

116. Contrary to its disclosure, Freddie Mac was exposed in its Single Family 

guarantee business to approximately $226 billion of C1, C2 and EA loans - loans internally 

described as "subprime," "otherwise subprime" or "subprime-like loans" - which represented 

approximately 13 percent of Freddie Mac's Single Family credit guarantee portfolio as of 

December 31, 2007. 

117. Syron certified and Cook sub-certified the 2007 Information Statement even 

though they knew or were reckless in not knowing that the Statement was materially false and 

misleading. 

First Quarter 0(2008 

118. On May 14, 2008, Freddie Mac published its lQ08 Information Statement 

Supplement, purported to assureinvestors that it monitors the subprime loans it guarantees and 

purported to disclose Freddie Mac's exposure to subprime loans underlying Structured 

Transactions: 

Participants in the mortgage market often characterize single­
family loans based upon their overall credit quality at the time of 
origination, generally considering them to be prime or subprime. 
There is no. universally accepted definition of subprime. The 
subprime segment of the mortgage market primarily serves 
borrowers . with poorer credit payment histories and such loans 
typically have a mix of credit characteristics that indicate a higher 
likelihood of default and higher loss severities than prime loans. 

39 




, ".' ,., ...... ,., ..~ .. ","- v'. _ . ,.,' .. , ., ~ , ~ . _ .'.' '."r ',',. _'.'~, . 

Such characteristics might include a combination of high LTV 
ratios, low credit scores or originations using lower underwriting 
standards such as limited or no documentation of a borrower's 
income. The subprime market helps certain borrowers by 
broadening the availability of mortgage credit. While we have not 
historically characterized . the single-family loans underlying our 
PCs and Structured Securities as either prime or subprime, we do 
monitor the amount of loans we have guaranteed with 
characteristics that indicate a higher degree of credit risk (see 
"Higher Risk Combinations" for further information). In addition, 
we estimate that approximately $4 billion of security collateral 
underlying our Structured Transactions at both March 31, 2008 and 
December 31, 2007. were classified as subprime. 

The 1 Q08 Information Statement Supplement also disclosed that, as of March 31, 2008. and 

December 31, 2007, Freddie Mac held in its Retained Portfolio - which is distinct from the 

Single Family guarantee portfolio - "approximately $93 billion and $101 billion, respectively, of 

non-agency mortgage-related securities backed by subprime loans." 

119. The statement in Freddie Mac's lQ08 Information Statement Supplement 

concerning Single Family's exposure to subprime in its guarantee portfolio was materially false 

and. misleading because it communicated the misleading impression that, after considering a mix 

of credit risk characteristics to assess its exposure to subprime loans, Freddie Mac had 

determined that its total Single Family exposure to subprime loans was only $4 billion, or the 

amount of its Structured Transactions as of March 31, 2008. In fact, at the time, Freddie Mac 

was exposed to approximately $239 billion of C1, C2 and EA loans - loans that were internally 

referred to as "subprime," "otherwise subprime"or "subprime-like loans - which represented 

approximately 14 percent ofFreddie Mac's Single Family credit guarantee portfolio. 

120. Syron certified and Cook sub-certified the lQ08 Information Statement 

Supplement even though they knew or were reckless in not knowing that the Statement was 

materially misleading. 

.t 

40Second Quarter 0(2008 

121. On August 6, 2008, Freddie Mac filed with the Commission its 2Q08 Form lO-Q, 

which was the first periodic report it filed following its registration with the Commission. The 

2Q08 Form lO-Q disclosed the following regarding Freddie Mac's subprime exposure: 

Participants in the mortgage market often characterize single­
family loans based upon their overall credit-quality at the time of 
origination, generally considering them to be prime or subprime. 
There is no universally accepted definition of subprime. The 
subprime segment of the mortgage market primarily serves 
borrowers with poorer credit payment histories and such loans 
typically have a mix of credit characteristics that indicate a higher 
likelihood of default and higher loss severities than prime loans. 
Such characteristics might include a combination of high LTV 
ratios, low credit scores or originations using lower underwriting 
standards such as limited or no documentation of a borrower's 
income. The subprime market helps certain borrowers by 
broadening the availability of mortgage credit. While we have not 
historically characterized the single-family loans underlying our 
PCs and Structured Securities as either prime orsubprime, we do 
monitor the amount of loans we have guaranteed with 
characteristics that indicate a higher degree of credit risk (see 
"Higher Risk Combinations" for further information). In addition, 
we estimate that approximately $6 billion of security collateral 
underlying our Structured Transactions at both June 30, 2008 and 
December 31, 2007 were classified as subprime. 

Although we do not categorize our single-family loans into prime 
or subprirpe, we recognize that certain ofthe mortgage loans in our 
retained portfolio exhibit higher risk characteristics. Total single­
family loans include $1.3 billion at both June 30, 2008 and 
December 31, 2007, of loans with higher-risk characteristics, 
which we define as loans with original LTV ratios greater than 
90% and borrower credit scores less than 620 at the time of loan 
origination. 

The 2Q08 Form 10-Q also disclosed that, as 6fJune 30, 2008 and December 31, 2007, Freddie 

. Mac held in its Retained Portfolio - which is distinct from the Single Family guarantee portfolio 

41 




- "approximately $86 billion and $101 billion, respectively, of non-agency mortgage-related 

securities backed by subprime loans." 

122. The statement in Freddie Mac's 2Q08 Form IO-Q concerning Single Family's 

exposure to subprime in its guararitee portfolio was materially false and misleading. It 

communicated the misleading impression that, after considering a mix of credit risk 

characteristics to assess its exposure to subprime loans, Freddie Mac had determined that its 

Single Family exposure to subprime loans was only $6 billion, or the amount of its Structured 

Transactions, as of June 30, 2008. In fact, at Jl,me 30, 2008, Freddie Mac's Single Family 

guarantee portfolio was exposed to approximately $244 billion of C1, C2 and EA loans - loans 

that were internally referred to as "subprime," "otherwise subprime" or "subprime-like loans ­

which represented approximately 14 percent of Freddie Mac's Single Family credit guarantee 

portfolio. 

123. Syron certified and Bisenius and Cook sub-certified to the 2Q08 Form 10-Q even 

though they knew or were reckless in not knOWing that the Statement was materially false and 

misleading. 

124. The chait below summarizes (in billions of u.S. dollars) the approximate 

exposure to subprime loans in the Freddie Mac Single Family guarantee business, as disclosed 

by Freddie Mac, compared to the Freddie Mac exposure to Caution Loans (C 1 and C2)and EA 

loans - loans that were internally described as "subprime," "otherwise subprime" or "subprime 

like" - during the same period: 

42 




Significant" 
0.1% $141 $1,467 10% 

0.1% $159 $1,528 10% 

0.1% $182 $1,586 11% 

N/A $206 $1,642 13% 

N/A $226 $1,692 13% 

N/A $239 $1,739 14% 

N/A $244 $1,784 14% 

FIRST CLAIM FOR RELIEF 

Violations of Section lO(b) of the Exchange Act and Rules lOb-5(b) 
(Against Syron and Cook) 

125. Paragraphs 1 through 124 are realleged and incorporated by reference as if set 

forth fully herein. 

126; Syron and Cook, directly or indirectly, by use of the means or instrumentalities of 

interstate commerce, or by use of the mails, or of the facilities of a national securities exchange, 

in connection with the pur~hase or sale of Freddie Mac securities~ knowingly or recklessly, made 

43 




untrue statements of material facts and omitted to state material facts necessary in order to make 

the statements made, in the light of the circumstances under which they were made, not 

misleading. 

127. By reason of the foregoing, Syron and Cook violated, and unless enjoined will 

again violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule lOb-5(b) 

thereunder [17 C.F.R. § 240.l0b-5(b)]. 

SECOND CLAIM FOR RELIEF 


Aiding and Abetting Violations of 

Section lO(b) ofthe Exchange Act and Rules lOb-5(b) 


(Against Syron, Cook and Bisenius) 


128. Paragraphs 1 through 127 are realleged and incorporated by reference as if set 

forth fully herein. 

129. Freddie Mac, directly or indirectly, by use of the means or instrumentalities of 

interstate commerce, or by use of the mails, or of the facilities of a national securities exchange, 

in connection with the purchase or sale of securities, knowingly or recklessly, made untrue 

statements of material facts and omitted to state material facts necessary in order to make the 

statements made, in the light ofthe circumstances under which they were made, not misleading. 

130. By reason of the foregoing, Syron knowingly or recklessly provided substantial . . 

assistance to and thereby aided and abetted Freddie Mac in its violations of Exchange Act 

Section 10(b) and Rule IOb-5(b) [17 C.F.R. § 240.l0b-5(b)]; therefore, Syron is liable pursuant 

to Exchange Act Section20(e) [15 U.S.c. § 78t(e)]. 

131. By reason of the foregoing, Cook knowingly or recklessly provided substantial 

assistance to Freddie Mac and/or Syron and thereby aided and abetted Freddie Mac and/or Syron 

in their violations of Exchange Act Section 10(b) and Rule lOb-5(b) [17 C.F.R. § 240.l0b-5(b)]; 

therefore, Cook is liable pursuant to Exchange Act Section 20(e) [15 U.S.c. § 78t(e)]. 

44 




, , 

132. By reason ofthe foregoing, Bisenius knowingly or recklessly provided substantial 

assistance to Freddie Mac, Syron and/or Cook and thereby aided and abetted Freddie Mac, Syron 

and/or Cook in their violations of Exchange Act Section 1 O(b) and Rule 1 Ob-5(b) [17 C.F.R. 

§ 240.10b-5(b)]; therefore, Bisenius is liable pursuant to Exchange ACt Section 20(e) [15 U.S.c. 

§ 78t(e)]. 

133. Unless restrained and enjoined, Syron, Cook and Bisenius will in the future aid 

and abet violations of Section 10(b) ofthe Exchange Act [15 U.S.C. § 78j(b)] and Rule lOb-5(b) , 

thereunder [17 C.F.R. § 240.l0b-5(b)]. 

THIRD CLAIM FOR RELIEF 


Violations of Sections 17(a)(2) of the Securities Act 

(Against Syron and Cook) 


134. Paragraphs 1 through 133 are realleged and incorporated by reference as if set 

forth fully herein. 

135. Syron and Cook, directly or indirectly, in the offer and sale of Freddie Mac 

securities, by use of the means and instruments of transportation and communication in interstate 

commerce and by use of the mails, knowingly, recklessly, or negligently have obtained money or 

property by means of untrue statements of material fact or omitted to state material 'facts 

necessary in order to make the statements made, in light of the circumstances under which they 

were made, not misleading. 

136. By reason the foregoing, Syron and Cook violated, and unless enjoined will again 

violate, Section 17(a)(2) ofthe Securities Act [15 U.S.c. § 77q(a)(2)]. 

45 




...... " .:.<.:-:-:: 

FOURm CLAIM FOR RELIEF 

Violation of Exchange Act Rule 13a-14 
(Against Syron) 

137. Paragraphs 1 through 136 are realleged and incorporated by reference as if set 

forth fully herein. 

138. On August 6, 2008, Syron signed false certifications pursuant to Section 302 of 

the Sarbanes-Oxley Act of2002 and Rule 13a-14 promulgated thereunder, that were included in 

Freddie Mac's Form 10-Q filed with the Commission on that date. His certification falsely 

stated that: he had reviewed each report; based upon his knowledge, the reports did not contain 

any untrue statement of a material fact or omit to state a material fact necessary to make the 

statements made, in light of the circumstances under which such statements were made, not 

misleading; and based upon his knowledge, the financial statements and information contained in 

each report fairly present in all material respects the financial condition, results ofoperations and 

cash flows ofthe issuer. 

139. By reason of the foregoing, Syron violated, and unless restrained and enjoined 

will in the future violate, Exchange Act Rule 13a-14 [17 C.F.R. § 240.13a-14] promulgated 

under Section 302 ofthe Sarbanes-Oxley Act of2002. 

FIFTH CLAIM FOR RELIEF 


Aiding and Abetting Violations of Section 13(a) of the 

Exchange Act and Rules 12b-20 and 13a-13 


(Against Syron, Cook and Bisenius) 


140. Paragraphs 1 through 139 are realleged and incorporated by reference as if set 

forth fully herein. 

141. Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers of 

registered securities to file with the Commission factually accurate quarterly reports. Exchange 

46 




Act Rule 12b-20 provides that, in addition to the information expressly required to be included in 

a statement or report, there shall be added such further material information, if any, as may be 

necessary to make the required statements, in the light ofthe circumstances under which they are 

made, not misleading. 

142. Freddie Mac violated Exchange Act § 13(a) [15 U.S.c. § 78m(a)] and Exchange 

Act Rules 12b-20 and 13a-13 [17 C.F.R. §§ 240.l2b-20, 240. 13a-13]. 

143. By reason of the foregoing, Syron, Cook and Bisenius acted knowingly or 

recklessly provided substantial assistance to and thereby aided and abetted Freddie Mac's 

violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 

12b-20 and 13a-13 [17 C.F.R. §§ 240.12b-20 and 240.l3a-13]; therefore, each is liable pursuant 

to Exchange Act Section 20(e) [15 U.S.C. § 78t(e)]. 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that this Court: 

(a) Permanently restrain and enjoin defendants Syron and Cook from violating or 

aiding and abetting violations of Section 17(a) of the Securities Act [15 U.S.C. 

§ 77q(a)], Section lOeb) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule IOb-5(b) thereunder 

[17 C.F.R. § 240.10b-5(b)], Section 13(a) of the Exchange Act [15 U.S.c. § 78m(a)] and 

Exchange Act Rules 12b-20 and 13a-13, and with respect to defendant Syron only, Exchange 

Act Rule 13a-14 [17C.F.R. §§ 240.b-20, 240.13a-13, and 240.13a-14]; 

(b) Permanently restrain and enjoin defendant Bisenius from aiding and abetting 

violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5(b) 

thereunder [17 C.F.R. § 240.l0h.. 5(b)], Section 13(a) of the Exchange Act [15 U.S.c. § 78m(a)] 

and Exchange Act Rules 12b-20 and 13a-13 [17 C.F.R. §§ 240.b-20and 240. 13a-13]; 

47 




·........-'. -.'.. . : ;. ~.: - , 

'~. . .'.' . 

(c) Order Syron, Cook and Bisenius to pay disgorgement, together with prejudgment 

interest; 

(d) Order Syron, Cook and Bisenius to pay penalties pursuant to Section 20(d) of the 

Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.c. 

§ 78u(d)(3)]; 

(e) . Permanently bar Syron, Cook and Bisenius, pursuant to Section 20(e)of the 

Securities Act [15 U.S.C. §77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. 

§ 78u(d)(2)]; from acting as an officer or director of any issuer that has a claSs of securities 

registered under Section 12 of the Exchange Act [15 U.S.C. § 781] or that is required to file 

reports pursuant to Section 15(d) ofthe Exchange Act [15 U.S.C. § 780(d)]; and 

48 




....:::... ::.::":­

(t) Grant such other relief as this Court may deem necessary and proper. 

Dated: December 14, 2011 
Washington, DC 

Of Counsel: 
Stephen L. Cohen 
Charles E. Cain 
Giles T. Cohen 
David S. Karp 

Suzanne J. omajas 
Kevin P. O'Rourke 
SECURITIES AND EXCHANGE COMMISSION 
100 F Street, N.E. 
Washington, DC 20549-5971 
Tel: 202-551-4473 (Romajas) 
Email (Romajas): [email protected] 
Email (O'Rourke): [email protected] 

Counsel for Plaintiff 

49 


mailto:[email protected]
mailto:[email protected]