Preferred Stock Losses: Freddie Mac Series Z

Investors of Freddie Mac Preferred Stock, Series Z are unlikely to forget the date of Sept. 6, 2008. It was on that day the U.S. government made the unprecedented move to place both Freddie Mac and Fannie Mae under the conservatorship of the Federal Housing Finance Agency (FHFA).  In doing so, investors holding preferred shares of Freddie Mac Series Z saw the value of their investment plummet overnight.

The initial offering of Freddie Mac Preferred Stock, Series Z occurred in late 2007 when the mortgage giant – whose financial health already was in jeopardy – found itself severely undercapitalized. Underwriters of the Series Z offering included Goldman Sachs, J.P. Morgan and Citigroup Global Markets, as well as others.

As it turns out, the offering circulars associated with Freddie Mac Preferred Stock Series Z failed to alert investors to a number of possible risks that the preferred shares posed. Among the missing information: Freddie Mac was extremely undercapitalized. It had significant exposure to an undetermined amount of mortgage-related losses. The company also lacked proper risk-management procedures. Most important, insolvency was a real possibility in Freddie Mac’s future.

It’s now believed that many of the brokerage firms that acted as underwriters of the Freddie Mac Preferred Stock Series Z offering knowingly kept this information from investors. Not only did they allegedly fail to disclose the true risks associated with the offering itself but they also may have kept the facts about Freddie Mac’s financial condition under wraps, as well.

Freddie Mac’s Series Z offering initially was issued at a price of $25.55 in November 2007. In September 2008, the preferred stock had declined 95%, trading at $1.25 per share.

If you experienced investment losses in Freddie Mac’s Preferred Stock, Series Z or another preferred stock, please contact us. A member of our securities fraud team will evaluate your situation to determine if you have a viable claim for recovery.

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