Fannie Mae 2007 Annual Report Download - page 280

statement and falsified documents to cause our financial performance to appear smooth and stable, and that
Fannie Mae was harmed as a result. The claims are for breaches of the duty of care, breach of fiduciary duty,
waste, insider trading, fraud, gross mismanagement, violations of the Sarbanes-Oxley Act of 2002, and unjust
enrichment. Plaintiffs seek unspecified compensatory damages, punitive damages, attorneys’ fees, and other
fees and costs, as well as injunctive relief directing us to adopt certain proposed corporate governance policies
and internal controls.
The lead plaintiffs filed an amended complaint on September 1, 2006, which added certain third parties as
defendants. The amended complaint also added allegations concerning the nature of certain transactions
between these entities and Fannie Mae, and added additional allegations from OFHEO’s May 2006 report on
its special investigation of Fannie Mae and from a report by the law firm of Paul, Weiss, Rifkind & Garrison
LLP on its investigation of Fannie Mae. On May 31, 2007, the court dismissed this consolidated lawsuit in its
entirety against all defendants. On June 27, 2007, plaintiffs filed a Notice of Appeal, which is currently
pending with the U.S. Court of Appeals for the District of Columbia.
On September 20, 2007, James Kellmer, a shareholder who had filed one of the derivative actions that was
consolidated into the consolidated derivative case, filed a motion for clarification or, in the alternative, for
relief of judgment from the Court’s May 31, 2007 Order dismissing the consolidated case. Mr. Kellmer’s
motion seeks clarification that the Court’s May 31, 2007 dismissal order does not apply to his January 10,
2005 action, and that his case can now proceed. This motion is pending.
On June 29, 2007, Mr. Kellmer also filed a new derivative action in the U.S. District Court for the District of
Columbia. Mr. Kellmer’s new complaint alleges that he made a demand on the Board of Directors on
September 24, 2004, and that this new action should now be allowed to proceed. On December 18, 2007,
Mr. Kellmer filed an amended complaint that narrowed the list of named defendants to certain of our current
and former directors, Goldman Sachs Group, Inc. and us, as a nominal defendant. The factual allegations in
Mr. Kellmer’s 2007 amended complaint are largely duplicative of those in the amended consolidated
complaint and his amended complaint’s claims are based on theories of breach of fiduciary duty,
indemnification, negligence, violations of the Sarbanes-Oxley Act of 2002 and unjust enrichment. His
amended complaint seeks unspecified money damages, including legal fees and expenses, disgorgement and
punitive damages, as well as injunctive relief.
In addition, on July 6, 2007, Arthur Middleton filed a derivative action in the U.S. District Court for the
District of Columbia that is also based on Mr. Kellmer’s alleged September 24, 2004 demand. This complaint
names as defendants certain of our current and former officers and directors, the Goldman Sachs Group, Inc.,
Goldman, Sachs & Co. and us, as a nominal defendant. The allegations in this new complaint are essentially
identical to the allegations in the amended consolidated complaint referenced above, and this plaintiff seeks
identical relief.
On July 27, 2007, Mr. Kellmer filed a motion to consolidate these two new derivative cases and to be
appointed lead counsel. We filed a motion to dismiss Mr. Middleton’s complaint for lack of standing on
October 3, 2007, and a motion to dismiss Mr. Kellmer’s 2007 complaint for lack of subject matter jurisdiction
on October 12, 2007. These motions remain pending.
Arthur Derivative Litigation
On November 26, 2007, Patricia Browne Arthur filed a derivative action in the U.S. District Court for the
District of Columbia against certain of our current and former officers and directors and against us as a
nominal defendant. The complaint alleges that the defendants wrongfully failed to disclose our exposure to the
subprime mortgage crisis and that this failure artificially inflated our stock price and allowed certain of the
defendants to profit by selling their shares based on material inside information; and that the Board improperly
authorized the company to buy back $100 million in shares while the stock price was artificially inflated. The
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)