Sallie Mae 2009 Annual Report Download - page 18

decision was appealed to the Ninth Circuit Court of Appeals. On January 25, 2010, the Ninth Circuit Court of
Appeals affirmed the summary judgment on all counts on the basis of federal preemption.
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 relator
alleged 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 relator sought money damages
in excess of $12 million plus treble damages on behalf of the federal government. The District Court dismissed
the case with prejudice in August 2008 and the relator appealed to the Seventh Circuit Court of Appeals in
September 2008. On August 27, 2009, the Seventh Circuit Court of Appeals affirmed the dismissal.
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. The court denied SLM Corporation’s Motion for Summary Judgment without prejudice on June 24,
2009. The Court granted Defendants partial Motion to Dismiss the Truth in Lending Act counts on
November 10, 2009. Discovery is proceeding.
On April 20, 2009, the Company received a letter on behalf of a shareholder, SEIU Pension Plans Master
Trust, demanding, among other things, that the Company’s Board of Directors take action to recover Company
funds it alleges were “unjustly paid to certain current and former employees and executive officers of the
Company” from 2005 to the present, file civil lawsuits against former and current executives, revise the executive
compensation structure, and offer shareholders an annual nonbinding “say on pay.” Twenty-nine financial services
companies received similar letters that same week. This letter was referred to the Board of Directors. After
investigation and consideration, the Board determined that it was not in the best interest of the Company’s
shareholders for the Company to take any further action with respect to the allegations in the letter. Board counsel
conveyed that decision to counsel for the SEIU Pension Plans Master Trust in a letter dated November 9, 2009.
On July 15, 2009, the U.S. District Court for the District of Columbia unsealed the qui tam False Claims
Act complaint of relator Sheldon Batiste, a former employee of SLM Financial Corporation (U.S. ex rel.
Batiste v. SLM Corporation, et al.). The First Amended Complaint alleges that the Company violated the False
Claims Act by its “systemic failure to service loans and abide by forbearance regulations” and “its receipt of
U.S. subsidies to which it was not entitled” through the federally guaranteed student loan program, FFELP. No
amount in controversy is specified, but the relator seeks treble actual damages, as well as civil monetary
penalties on each of its claims. The U.S. Department of Justice declined intervention. The Company filed its
Motion to Dismiss on September 21, 2009. The Motion remains pending.
On August 3, 2009, the Company received the final audit report of ED’s Office of the Inspector General
(“OIG”) related to the Company’s billing practices for special allowance payments. Among other things, the
OIG recommended that ED instruct the Company to return approximately $22 million in alleged special
allowance overpayments. The Company continues to believe that its practices were consistent with longstand-
ing ED guidance and all applicable rules and regulations and intends to continue disputing these findings. The
Company provided its response to the Secretary on October 2, 2009. The OIG has audited other industry
participants with regard to special allowance payments for loans funded by tax exempt obligations and in
certain cases the Secretary of ED has disagreed with the OIG’s recommendations.
On August 26, 2009, the U.S. District Court for the Eastern District of Virginia unsealed a qui tam False
Claims Act complaint filed on September 21, 2007 by a former ED researcher, Dr. Jon Oberg, against eleven
student loan companies, including two Sallie Mae companies, SLM Corporation and Southwest Student
Services Corporation (Southwest) (U.S. ex rel. Oberg v. Nelnet et al.). The complaint seeks the return of
approximately $1 billion in the aggregate from the eleven companies as a result of alleged improper
“recycling” of 9.5 percent SAP loans. The U.S. Department of Justice declined to intervene. The allegations
against SLM Corporation in the amended complaint appear to be that Southwest allegedly engaged in
wrongful “recycling” of student loans. The Company purchased Southwest in 2004. According to the
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