Sallie Mae 2010 Annual Report Download - page 19

Item 3. Legal Proceedings
Investor Litigation
On January 31, 2008, a putative class action lawsuit was filed against us and certain officers in the United
States 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 our common stock
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 our
securities. The complaint alleges that Defendants caused our results for year-end 2006 and for the first quarter of
2007 to be materially misstated because we failed to adequately provide for loan losses, which overstated our net
income, and that we failed to adequately disclose allegedly known trends and uncertainties with respect to our
non-traditional loan portfolio. On September 24, 2010, the court denied our motion to dismiss Mr. Albert Lord
and the Company, but dismissed Mr. C.E. Andrews as a defendant in the action. The matter is now in the
discovery phase. 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, formerly in the U.S. District Court for the Southern
District of New York and now before the United States Court of Appeals for the Second Circuit. The case was
originally filed on May 8, 2008 and the purported class consists of participants in or beneficiaries of the Sallie
Mae 401(K) Retirement Savings Plan and Sallie Mae 401(k) Savings Plan (“401K Plans”) between January 18,
2007 and “the present” whose accounts included investments in our common 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 our
business made during the 401K Class Period and investments in our common stock by participants in the
401K Plans. On September 24, 2010, this case was dismissed; however, the Plaintiffs appealed. The appeal is
pending. The Plaintiffs/Appellants seek unspecified damages, attorneys’ fees, costs, and equitable and
injunctive relief.
Lending and Collection Litigation and Investigations
On July 15, 2009, the United States 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 we violated the False Claims Act
by our “systemic failure to service loans and abide by forbearance regulations” and our “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. Defendants filed their Motion to Dismiss on
September 21, 2009. On September 24, 2010, the United States District Court for the District of Columbia
granted our Motion to Dismiss in its entirety. On October 25, 2010, Plaintiff/Relator filed a Notice of Appeal
with the United States Court of Appeals for the District of Columbia Circuit. The appeal is pending.
On February 2, 2010, a putative class action suit was filed by a borrower in U.S. District Court for the
Western District of Washington (Mark A. Arthur et al. v. SLM Corporation). The suit complains that we
allegedly contacted “tens of thousands” of consumers on their cellular telephones via autodialer without their
prior express consent in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. (“TCPA”).
Each violation under the TCPA provides for $500 in statutory damages ($1,500 if a willful violation is shown).
Plaintiffs seek statutory damages, damages for willful violations, attorneys’ fees, costs, and injunctive relief. On
April 5, 2010, Plaintiffs filed a First Amended Class Action Complaint changing the defendant from SLM
Corporation to Sallie Mae, Inc. The parties in this matter have reached a tentative settlement which is subject to
court approval and other conditions. On September 14, 2010, the United States District Court for the Western
District of Washington agreed to Plaintiff’s Motion for Preliminary Approval of Settlement Agreement. We have
vigorously denied all claims asserted against us, but agreed to the settlement to avoid the burden and expense of
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