Sallie Mae 2008 Annual Report Download - page 20

Item 3. Legal Proceedings
The Company is involved in a number of judicial and regulatory proceedings, including those described
below, concerning matters arising in connection with the conduct of our business. We believe, based on
currently available information, that the results of such proceedings, in the aggregate, will not have a material
adverse effect on the financial condition of the Company.
Investor Litigation
On January 31, 2008, a putative class action lawsuit was filed against the Company and certain officers in
U. S. District Court for the Southern District of New York. This case and other actions arising out of the same
circumstances and alleged acts have been consolidated and are now identified as In Re SLM Corporation
Securities Litigation. The case purports to be brought on behalf of those who acquired common stock of the
Company between January 18, 2007 and January 23, 2008 (the “Securities Class Period”). The complaint
alleges that the Company and certain officers violated federal securities laws by issuing a series of materially
false and misleading statements and that the statements had the effect of artificially inflating the market price
for the Company’s securities. The complaint alleges that defendants caused the Company’s results for year-end
2006 and for the first quarter of 2007 to be materially misstated because the Company failed to adequately
provide for loan losses, which overstated the Company’s net income, and that the Company failed to
adequately disclose allegedly known trends and uncertainties with respect to its non-traditional loan portfolio.
On July 23, 2008, the court appointed Westchester Capital Management (“Westchester”) Lead Plaintiff. On
December 8, 2008, Lead Plaintiff filed a consolidated amended complaint. In addition to the prior allegations,
the consolidated amended complaint alleges that the Company understated loan delinquencies and loan loss
reserves by promoting loan forbearances. On December 19, 2008, and December 31, 2008, two rejected lead
plaintiffs filed a challenge to Westchester as Lead Plaintiff. That motion is pending. Lead Plaintiff seeks
unspecified compensatory damages, attorneys’ fees, costs, and equitable and injunctive relief.
A similar case is pending against the Company, certain officers, retirement plan fiduciaries, and the Board
of Directors, In Re SLM Corporation ERISA Litigation, also in the U.S. District Court for the Southern
District of New York. The proposed class consists of participants in or beneficiaries of the Sallie Mae 401(K)
Retirement Savings Plan (“401K Plan”) between January 18, 2007 and “the present” whose accounts included
investments in Sallie Mae stock (“401K Class Period”). The complaint alleges breaches of fiduciary duties and
prohibited transactions in violation of the Employee Retirement Income Security Act arising out of alleged
false and misleading public statements regarding the Company’s business made during the 401(K) Class Period
and investments in the Company’s common stock by participants in the 401(K) Plan. On December 15, 2008,
Plaintiffs filed a Consolidated Class Action Complaint. The plaintiffs seek unspecified damages, attorneys’
fees, costs, and equitable and injunctive relief.
Lending and Collection Litigation and Investigations
On September 17, 2007, the Company became a party to a qui tam whistleblower case, United States ex.
Rel. Rhonda Salmeron v. Sallie Mae, in the U.S. District Court for the Northern District of Illinois. The
plaintiff alleges that various defendants submitted false claims and/or created records to support false claims in
connection with collection activity on federally guaranteed student loans, and specifically that the Company
was negligent in auditing the collection practices of one of the defendants. The plaintiffs seek money damages
in excess of $12 million plus treble damages on behalf of the federal government. This case was dismissed
with prejudice in August 2008 and was appealed to the Seventh Circuit Court of Appeals in September 2008.
The appeal is pending.
On December 17, 2007, plaintiffs filed a complaint against the Company, Rodriguez v. SLM Corporation
et al., in the U.S. District Court for the District of Connecticut alleging that the Company engaged in
underwriting practices which, among other things, resulted in certain applicants for student loans being
directed into substandard and expensive loans on the basis of race. The plaintiffs have not stated the relief
they seek. Motions to dismiss Sallie Mae, Inc. and for summary judgment as to the Company are pending.
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