Freddie to Settle 401(k) Suit

Freddie Mac has agreed to pay $4.65 million to settle a lawsuit brought on behalf of past and present employees who held Freddie stock through their 401(k) retirement plans when the company disclosed billions of dollars of accounting errors and its share price sank.

The settlement, which remains subject to court approval, would tie up one of the loose ends from a scandal that has resulted in hundreds of millions of dollars in other settlements with regulators and investors.

Freddie's accounting remains the subject of an investigation by the Securities and Exchange Commission. But Freddie said yesterday that the Labor Department has closed its investigation of the federally chartered housing finance company's 401(k) plan.

Freddie Mac stock was one of multiple investment options available to employees through the plan. The lawsuit said that Freddie Mac stock was an imprudent option and that the plan's overseers, including former top executives, were at fault because they knew of the company's "unlawful accounting artifices."

At the end of 2002, $76.5 million of the retirement plan's holdings -- 19 percent of the total -- was invested in Freddie stock, the lawsuit said.

To share in the settlement, 401(k) participants must have held Freddie stock from July 1999 to November 2003, Freddie Mac spokeswoman Sharon McHale said. The money would be distributed by plaintiffs' lawyers, and the method and criteria for distributing it have not been determined, McHale said.

Freddie settled without admitting or denying wrongdoing. The company's insurance would pay the settlement. The $4.65 million also would cover fees for plaintiffs' lawyers, McHale said.

Under the settlement, Freddie agreed to hold seminars for employees on the importance of diversifying assets and to further educate 401(k) plan overseers about their obligations.

Richard F. Syron, who became chief executive after the scandal toppled two predecessors, said in a statement that the settlement "further demonstrates our commitment to resolving past issues."

Lawyers who filed the lawsuit did not return calls.

Freddie Mac in 2003 agreed to pay $125 million to resolve a regulatory inquiry and in April agreed to pay investors $410 million to settle a class-action lawsuit.