Fannie Mae 2005 Annual Report Download - page 312

20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder, largely with
respect to accounting statements that were inconsistent with the GAAP requirements relating to hedge
accounting and the amortization of premiums and discounts. Plaintiffs contend that the alleged fraud resulted
in artificially inflated prices for our common stock. Plaintiffs seek compensatory damages, attorneys’ fees, and
other fees and costs. Discovery commenced in this action following the denial of the motions to dismiss filed
by us and the former officer defendants on February 10, 2006.
On April 17, 2006, the plaintiffs in the consolidated class action filed an amended consolidated complaint
against us and former officers Franklin D. Raines, J. Timothy Howard and Leanne Spencer, that added
purchasers of publicly traded call options and sellers of publicly traded put options to the putative class and
sought to extend the end of the putative class period from September 21, 2004 to September 27, 2005. We and
the individual defendants filed motions to dismiss addressing the extended class period and the deficiency of
the additional accounting allegations. On August 14, 2006, while those motions were still pending, the
plaintiffs filed a second amended complaint adding KPMG LLP and Goldman, Sachs & Co., Inc. as additional
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 was filed on January 8, 2007.
Plaintiffs filed a motion for class certification on May 17, 2006 and briefing on the motion was completed on
March 12, 2007.
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 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 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 May 12, 2006, the individual securities plaintiffs voluntarily dismissed defendants Ashe and Bordonaro
from both cases. 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. The second amended complaints each added as a defendant Radian
Group Inc. On August 17, 2006, we filed motions to dismiss certain claims and allegations of the individual
securities plaintiffs’ second amended complaints, which motions are still pending. 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.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)