Fannie Mae 2006 Annual Report Download - page 52

Department of Labor ESOP Investigation
In November 2003, the Department of Labor commenced a review of our ESOP and Retirement Savings Plan.
The Department of Labor has concluded its investigation of our Retirement Savings Plan, but continues to
review the ESOP. We continue to cooperate fully in this investigation.
RESTATEMENT-RELATED INVESTIGATIONS BY THE U.S. ATTORNEY’S OFFICE, OFHEO AND
THE SEC
U.S. Attorney’s Office Investigation
In October 2004, we were told by the U.S. Attorney’s Office for the District of Columbia that it was
conducting an investigation of our accounting policies and practices. In August 2006, we were advised by the
U.S. Attorney’s Office for the District of Columbia that it was discontinuing its investigation of us and does
not plan to file charges against us.
OFHEO Special Examination and Settlement
In July 2003, OFHEO notified us that it intended to conduct a special examination of our accounting policies
and internal controls, as well as other areas of inquiry. OFHEO began its special examination in
November 2003 and delivered an interim report of its findings in September 2004. On May 23, 2006, OFHEO
released the final report on its special examination. OFHEO’s final report concluded that, during the period
covered by the report (1998 to mid-2004), a large number of our accounting policies and practices did not
comply with GAAP and we had serious problems in our internal controls, financial reporting and corporate
governance. The final OFHEO report is available on our Web site (www.fanniemae.com) and on OFHEO’s
Web site (www.ofheo.gov).
Concurrent with OFHEO’s release of its final report, we entered into comprehensive settlements that resolved
open matters with the OFHEO special examination, as well as with the SEC’s related investigation (described
below). As part of the OFHEO settlement, we agreed to OFHEO’s issuance of a consent order. In entering into
this settlement, we neither admitted nor denied any wrongdoing or any asserted or implied finding or other
basis for the consent order. We also agreed to pay a $400 million civil penalty, with $50 million payable to
the U.S. Treasury and $350 million payable to the SEC for distribution to certain shareholders pursuant to the
Fair Funds for Investors provision of the Sarbanes-Oxley Act of 2002. We have paid this civil penalty in full.
For a description of the OFHEO consent order, see “Item 1—Business—Our Charter and Regulation of Our
Activities—OFHEO Regulation—OFHEO Consent Order.”
SEC Investigation and Settlement
Following the issuance of the September 2004 interim OFHEO report, the SEC informed us that it was
investigating our accounting practices.
Concurrently, at our request, the SEC reviewed our accounting practices with respect to hedge accounting and
the amortization of premiums and discounts, which OFHEO’s interim report had concluded did not comply
with GAAP. On December 15, 2004, the SEC’s Office of the Chief Accountant announced that it had advised
us to (1) restate our financial statements filed with the SEC to eliminate the use of hedge accounting, and
(2) evaluate our accounting for the amortization of premiums and discounts, and restate our financial
statements filed with the SEC if the amounts required for correction were material. The SEC’s Office of the
Chief Accountant also advised us to reevaluate the GAAP and non-GAAP information that we previously
provided to investors.
On May 23, 2006, without admitting or denying the SEC’s allegations, we consented to the entry of a final
judgment requiring us to pay the civil penalty described above and permanently restraining and enjoining us
from future violations of the anti-fraud, books and records, internal controls and reporting provisions of the
federal securities laws. The settlement resolved all claims asserted against us in the SEC’s civil proceeding.
Our consent to the final judgment was filed as an exhibit to the Form 8-K that we filed with the SEC on
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