FHLB Probes Insider Trading

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SEATTLE - (04/19/05) -- The Federal Home Loan Bank ofSeattle is investigating whether three of its member institutionshad inside information about the bank's troubled finances whenthose institutions requested redemptions of $330 million in stocklast fall, right before the bank cut its dividend and restrictedfuture redemptions. All three institutions, which had their stockredeemed at par, or $100 per share, had representatives on thebank's board of directors at the time. Recently, the Seattle bank,which faces unrealized losses of $260 million on its investmentportfolio, predicted it would pay minimal or no dividends on itsstock for the next few years while it implements a new capitalplan. While FHLB stock is not publicly traded, the necessity tomove millions of dollars into its capital account could diminishthe par value of the stock in the future. According to a reportissued by the Seattle bank, one of its other members has requestedthat the transactions be reversed because the threemember/directors possessed material nonpublic information about thebank's finances. The Seattle bank is owned by its 375 financialinstitution members, including 79 credit unions.

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