By Jonathan Stempel
NEW YORK (Reuters) - A federal appeals court on Tuesday upheld the dismissal of a shareholder lawsuit accusing Freddie Mac
The 2nd U.S. Circuit Court of Appeals in New York said shareholders failed to connect their losses to the alleged inadequate disclosures by the government-controlled mortgage company and its officials, including former Chief Executive Richard Syron.
Freddie Mac lost most of its stock market value when, along with the larger Fannie Mae
Shareholders led by the Illinois-based Central States, Southeast and Southwest Areas Pension Fund accused Freddie Mac of hiding its potential insolvency even after revealing a $2 billion quarterly loss on November 20, 2007.
But a three-judge 2nd Circuit panel said Freddie Mac had made "extensive disclosures" during the class period, and that the shareholders did not show that their losses stemmed from the additional revelations.
"Throughout its complaint, Central States alleges that before July 2008, speculation about Freddie's insolvency based on inadequate capitalization and insufficient internal controls caused the stock price to fluctuate," the panel wrote.
"As a result," it added, "Central States does not plausibly allege a causal connection between the drop of the share price and the information revealed in the corrective disclosures."
The court added that the shareholder losses also "coincided with a marketwide phenomenon - the housing bubble burst," and were not shown to be linked to any concealing of "hundreds of billions of dollars" of subprime mortgage exposure.
Tuesday's decision upheld a September 2012 ruling by U.S. District Judge John Keenan in Manhattan.
Douglas Wilens, a partner at Robbins Geller Rudman & Dowd representing the shareholders, did not immediately respond to requests for comment. The lawsuit was originally filed in 2008.
"We are gratified by the 2nd Circuit's ruling, which affirms the dismissal of the case in its entirety," said Jordan Hershman, a lawyer for Freddie Mac and co-chair of the securities litigation group at the law firm Bingham McCutchen.
Frank Volpe, a partner at Sidley Austin representing Syron, did not immediately respond to requests for comment.
Syron and other former Freddie Mac officials still face and have denied charges of wrongdoing in a U.S. Securities and Exchange Commission civil fraud lawsuit tied to the financial crisis.
The case is Central States, Southeast and Southwest Areas Pension Fund v. Federal Home Loan Mortgage Corp et al, 2nd U.S. Circuit Court of Appeals, No. 12-4353.
(Editing by Gerald E. McCormick, John Wallace and Dan Grebler)