Fannie Mae 2004 Annual Report Download - page 57

defendants and adding allegations based on the May 2006 report issued by OFHEO and the February 2006
report issued by Paul Weiss. Our answer to the second amended complaint is due to be filed on January 8,
2007. Plaintiffs filed a motion for class certification on May 17, 2006 that is still pending.
In addition, two individual securities cases have been filed by institutional investor shareholders in the
U.S. District Court for the District of Columbia. The first case was filed on January 17, 2006 by Evergreen
Equity Trust, Evergreen Select Equity Trust, Evergreen Variable Annuity Trust and Evergreen International
Trust against us and the following current and former officers and directors: Franklin D. Raines, J. Timothy
Howard, Leanne Spencer, Thomas P. Gerrity, Anne M. Mulcahy, Frederick V. Malek, Taylor Segue, III,
William Harvey, Joe K. Pickett, Victor Ashe, Stephen B. Ashley, Molly Bordonaro, Kenneth M. Duberstein,
Jamie Gorelick, Manuel Justiz, Ann McLaughlin Korologos, Donald B. Marron, Daniel H. Mudd, H. Patrick
Swygert and Leslie Rahl.
The second individual securities case was filed on January 25, 2006 by 25 affiliates of Franklin Templeton
Investments against us, KPMG LLP, and all of the following current and former officers and directors:
Franklin D. Raines, J. Timothy Howard, Leanne Spencer, Thomas P. Gerrity, Anne M. Mulcahy, Frederick V.
Malek, Taylor Segue, III, William Harvey, Joe K. Pickett, Victor Ashe, Stephen B. Ashley, Molly Bordonaro,
Kenneth M. Duberstein, Jamie Gorelick, Manuel Justiz, Ann McLaughlin Korologos, Donald B. Marron,
Daniel H. Mudd, H. Patrick Swygert and Leslie Rahl.
The two related individual securities actions assert various federal and state securities law and common law
claims against us and certain of our current and former officers and directors based upon essentially the same
alleged conduct as that at issue in the consolidated shareholder class action, and also assert insider trading
claims against certain former officers. Both cases seek compensatory and punitive damages, attorneys’ fees,
and other fees and costs. In addition, the Evergreen plaintiffs seek an award of treble damages under state law.
On June 29, 2006 and then again on August 14 and 15, 2006, the individual securities plaintiffs filed first
amended complaints and then second amended complaints seeking to address certain of the arguments made
by the defendants in their original motions to dismiss and adding additional allegations regarding improper
accounting practices. On August 17, 2006, we filed motions to dismiss certain claims and allegations of the
individual securities plaintiffs’ second amended complaints. The individual plaintiffs seek to proceed
independently of the potential class of shareholders in the consolidated shareholder class action, but the court
has consolidated these cases as part of the consolidated shareholder class action for pretrial purposes and
possibly through final judgment.
We believe we have defenses to the claims in these lawsuits and intend to defend these lawsuits vigorously.
Shareholder Derivative Lawsuits
In Re Fannie Mae Shareholder Derivative Litigation
Beginning on September 28, 2004, ten plaintiffs filed twelve shareholder derivative actions (i.e., lawsuits filed
by shareholder plaintiffs on our behalf) in three different federal district courts and the Superior Court of the
District of Columbia on behalf of the company against certain of our current and former officers and directors
and against us as a nominal defendant. Plaintiffs contend that the defendants purposefully misapplied GAAP,
maintained poor internal controls, issued a false and misleading proxy statement, and falsified documents to
cause our financial performance to appear smooth and stable, and that Fannie Mae was harmed as a result.
The claims are for breaches of the duty of care, breach of fiduciary duty, waste, insider trading, fraud, gross
mismanagement, violations of the Sarbanes-Oxley Act of 2002 and unjust enrichment. Plaintiffs seek
compensatory damages, punitive damages, attorneys’ fees, and other fees and costs, as well as injunctive relief
related to the adoption by us of certain proposed corporate governance policies and internal controls.
All of these individual actions have been consolidated into the U.S. District Court for the District of Columbia
and the court entered an order naming Pirelli Armstrong Tire Corporation and Wayne County Employees’
Retirement System as co-lead plaintiffs. A consolidated complaint was filed on September 26, 2005. The
consolidated complaint named the following current and former officers and directors as defendants: Franklin
D. Raines, J. Timothy Howard, Thomas P. Gerrity, Frederick V. Malek, Joe K. Pickett, Anne M. Mulcahy,
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