A federal appeals court has reversed a lower court decision that dismissed a lawsuit against Freddie Mac brought by a state pension fund.
The Ohio Public Employees Retirement System sued Freddie Mac claiming the fund lost money when the government-sponsored enterprise's stock price plummeted when it revealed the full extent of its exposure to risky subprime loans. OPERS had purchased stock in Freddie Mac from August 2006 to November 2007.
OPERS is the 14th largest retirement system in the country, with more than 920,000 members. The office of Ohio Attorney General Mike DeWine handled the case.
A spokeswoman for the attorney general's office said that it was "generally speaking pleased with the decision" and that the office is reviewing the court's opinion and will continue to pursue the case. Freddie Mac did not immediately return a request for comment.
The pension fund initially filed a securities fraud class action suit against Freddie Mac in January 2008. The lower court dismissed OPERS' third amended complaint in 2013 on the grounds that the fund did not adequately establish loss causation. The order from the district court also denied the fund's motion for a fourth amended complaint.
The decision from the Sixth Circuit U.S. Court of Appeals, written by Judge Jane Stranch, found that the pension fund had "sufficiently alleged loss causation" if the court were to take its allegations in the complaint as true.
"We are not persuaded by Freddie Mac's argument that OPERS fails to 'plead facts sufficient to exclude more likely explanations for its alleged losses, such as the worst financial crisis since the Great Depression,'" Stranch wrote in the court's decision.
"OPERS need only allege sufficient facts to support a plausible claim — not the most likely — at this stage…we conclude that it has done so."
