Fannie Mae 2005 Annual Report Download - page 54

a lawsuit against our former auditor, KPMG LLP, asserting state law negligence and breach of contract claims
related to certain audit and other services provided by KPMG.
We are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business.
For example, we are involved in legal proceedings that arise in connection with properties acquired either
through foreclosure on properties securing delinquent mortgage loans we own or through our receipt of deeds
to those properties in lieu of foreclosure. Claims related to possible tort liability occur from time to time,
primarily in the case of single-family REO property.
From time to time, we are also a party to legal proceedings arising from our relationships with our sellers and
servicers. Litigation can result from disputes with lenders concerning their loan origination or servicing
obligations to us, or can result from disputes concerning termination by us (for a variety of reasons) of a
lender’s authority to do business with us as a seller and/or servicer. In addition, loan servicing and financing
issues sometimes result in claims, including potential class actions, brought against us by borrowers.
We also are a party to legal proceedings arising from time to time from the conduct of our business and
administrative functions, including contractual disputes and employment-related claims.
Litigation claims and proceedings of all types are subject to many factors that generally cannot be predicted
accurately. For additional information on these proceedings, see “Notes to Consolidated Financial State-
ments—Note 19, Commitments and Contingencies.”
RESTATEMENT-RELATED MATTERS
Securities Class Action Lawsuits
In re Fannie Mae Securities Litigation
Beginning on September 23, 2004, 13 separate complaints were filed by holders of our securities against us, as
well as certain of our former officers, in the U.S. District Court for the District of Columbia, the U.S. District
Court for the Southern District of New York and the U.S. District Court for the Southern District of Ohio. The
complaints in these lawsuits purport to have been made on behalf of a class of plaintiffs consisting of
purchasers of Fannie Mae securities between April 17, 2001 and September 21, 2004. The complaints alleged
that we and certain of our officers, including Franklin D. Raines, J. Timothy Howard and Leanne Spencer,
made material misrepresentations and/or omissions of material facts in violation of the federal securities laws.
Plaintiffs’ claims were based on findings contained in OFHEO’s September 2004 interim report regarding its
findings to that date in its special examination of our accounting policies, practices and controls.
All of the cases were consolidated and/or transferred to the U.S. District Court for the District of Columbia. A
consolidated complaint was filed on March 4, 2005 against us and former officers Franklin D. Raines, J.
Timothy Howard and Leanne Spencer. The court entered an order naming the Ohio Public Employees
Retirement System and State Teachers Retirement System of Ohio as lead plaintiffs. The consolidated
complaint generally made the same allegations as the individually-filed complaints, which is that we and
certain of our former officers made false and misleading statements in violation of the federal securities laws
in connection with certain accounting policies and practices. More specifically, the consolidated complaint
alleged that the defendants made materially false and misleading statements in violation of Sections 10(b) and
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
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