Fannie Mae 2006 Annual Report Download - page 49

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 three federal district courts. 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 former officers
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. 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 unspecified
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 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. On
August 14, 2006, the plaintiffs filed a second amended complaint adding KPMG LLP and Goldman, Sachs &
Co. as additional defendants and adding allegations based on the May 2006 report issued by OFHEO and the
February 2006 report issued by Paul, Weiss, Rifkind, Wharton & Garrison LLP. Our answer to the second
amended complaint was filed on January 16, 2007. Plaintiffs filed a motion for class certification on May 17,
2006, and a hearing on that motion was held on June 21, 2007.
On April 16, 2007, KPMG filed cross-claims against us in this action for breach of contract, fraudulent
misrepresentation, fraudulent inducement, negligent misrepresentation, and contribution. KPMG is seeking
unspecified compensatory, consequential, restitutionary, rescissory, and punitive damages, including purported
damages related to injury to KPMG’s reputation, legal costs, exposure to legal liability, costs and expenses of
responding to investigations related to our accounting, and lost fees. KPMG is also seeking attorneys’ fees,
costs, and expenses. Fannie Mae filed a motion to dismiss certain of KPMG’s cross-claims. That motion was
denied on June 27, 2007. We have separately filed a case against KPMG, which is discussed below under
“Other Legal Proceedings—KPMG Litigation.”
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 B. Marron, Daniel H. Mudd, H. Patrick
Swygert, and Leslie Rahl.
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