Dispute costs state a leading role in suit

North Carolina loses a chance to be lead plaintiff in suit against Freddie Mac

A turf battle between state Treasurer Richard Moore and state Attorney General Roy Cooper has cost North Carolina the opportunity to lead a class action lawsuit against mortgage backer Freddie Mac.

At issue is which state agency should handle lawsuits seeking to protect the state's pension funds.

On Monday, a federal judge in New York found that North Carolina had the most money at stake in the Freddie Mac suit -- $18 million -- but, because of Cooper's objections, he denied Moore's request that North Carolina be the lead plaintiff.

"Given the uncertainty surrounding the Treasurer's legal authority to act on the [state retirement system's] behalf, the Court cannot accept his certification that [the retirement system] is willing and able to serve as lead plaintiff," U.S. District Court Judge John Keenan wrote.

The lead plaintiff takes control in a class action suit. Moore said in a statement he was disappointed at losing that position.

"It is unfortunate that this decision means North Carolina cannot use every tool and resource available to get the largest recovery possible for our 820,000 pensioners," Moore said. "Protecting members of the retirement systems and their investments is at the heart of the Department's mission."

Keenan's ruling could affect a second class action suit filed in September against the officers of the other government-supported mortgage company, Fannie Mae. Moore petitioned the court to be the lead plaintiff in that case this month because the state has lost more than $70 million in investments with Fannie Mae.

Both suits accuse the companies' top officials of misrepresentation to investors.

Like the earlier suit against Freddie Mac, Moore has hired an out-of-state law firm and a local firm to represent the pension funds, which serve 820,000 current and retired state and local government employees, including teachers and firefighters. And also like the earlier suit, Cooper's office has filed a letter with the court saying Moore lacked the authority to take action without the approval of Cooper and Gov. Mike Easley.

Cooper's spokeswoman, Noelle Talley, said Cooper's office has been trying to get Moore to develop a competitive bidding process for the hiring of outside counsel.

Documentation provided by Moore's office suggests that he made such a proposal in March, but did not hear back from Cooper's office. Meanwhile, Moore's staff says he needed to quickly sign on to the class action suits or the state could lose out on damages.

Cooper's office would also likely hire out-of-state lawyers if the state became the lead plaintiff. Talley said the office has a competitive bidding process for the selection of outside counsel.

Top firms in securities litigation have given to Cooper's campaigns. This year alone, they chipped in roughly $45,000, according to his campaign reports. But Talley said the Attorney General's Office has not hired any firms for securities litigation and wouldn't unless another appropriate agency, such as the treasurer, made the request.

"We would work with the governor's office and the requesting agency to determine if paying for outside counsel would be necessary," Talley said in an e-mail response, "and, if so, develop an appropriate process to retain outside counsel."

The local firm Moore hired for both lawsuits includes former Lt. Gov. Dennis Wicker as one of its partners. Wicker and his family were big campaign contributors to Moore's campaigns.

Wicker said he thinks his firm, SZD Wicker, got the business because it specializes in securities litigation. Keith Anthony, the firm attorney who is handling both cases, said the state needs local representation to make sure its position is protected and to comply with requests for records and other information.

But Anthony said there may not be much of a need for a local law firm if North Carolina's retirement system is not designated as the lead plaintiff.