Clients of financial service firms may be able to recover some, or all, of their investment losses in Fannie Mae and Freddie Mac preferred stocks.
Financial advisors and brokers at firms like Merrill Lynch, Citigroup Smith Barney, Wachovia and AG Edwards pitched preferred stocks in Fannie Mae and Freddie Mac to over 1 million investors nationally as an conservative investment that was appropriate and suitable for elderly clients or clients in or nearing retirement. The preferred shares also paid a regular dividend.
Clients were often told that they either could not lose money, or would not lose investment principal in the Fannie Mae and Freddie Mac preferred stocks. These types of representations were made to investors as an inducement to invest significant sums into these preferred stocks. Would be investors were told by their full service brokers that in the unlikely event Fannie Mae or Freddie Mac defaulted, the U.S. government would step in and make investors whole or otherwise cover their investment losses. This simply wasn’t the case. While bond holders in Fannie Mae and Freddie Mac would be protected, the common share holders and the preferred shareholders would not be offered any protections. To state otherwise is highly misleading and a misrepresentation under most state security laws.
The real, undisclosed risks to Fannie Mae and Freddie Mac preferred stocks holders were not properly discosed to may investors who may have recourse.