Fannie Mae 2007 Annual Report Download - page 58

Public Employees Retirement System and State Teachers Retirement System of Ohio as lead plaintiffs. The
lead plaintiffs filed a consolidated complaint on March 4, 2005 against us and certain of our former officers.
That complaint was subsequently amended on April 17, 2006 and then again on August 14, 2006. The lead
plaintiffs’ second amended complaint also added KPMG LLP and Goldman, Sachs & Co. as additional
defendants. The lead plaintiffs allege 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. The lead plaintiffs
contend that the alleged fraud resulted in artificially inflated prices for our common stock and seek
unspecified compensatory damages, attorneys’ fees, and other fees and costs.
On January 7, 2008, the court issued an order that certified the action as a class action, and appointed the lead
plaintiffs as class representatives and their counsel as lead counsel. The court defined the class as all
purchasers of Fannie Mae common stock and call options and all sellers of publicly traded Fannie Mae put
options during the period from April 17, 2001 through December 22, 2004.
On December 12, 2006, we filed suit against KPMG LLP, our former outside auditor and a co-defendant in
the shareholder class action suit, in the Superior Court of the District of Columbia. The complaint alleges state
law negligence and breach of contract claims related to certain audit and other services provided by KPMG.
We filed an amended complaint on February 15, 2008, adding additional allegations. We are seeking
compensatory damages in excess of $2 billion to recover costs related to our restatement and other damages.
On December 12, 2006, KPMG removed the case to the U.S. District Court for the District of Columbia, and
it has been consolidated for pretrial purposes with the shareholder class action suit.
On April 16, 2007, KPMG LLP filed cross-claims against us in this action for breach of contract, fraudulent
misrepresentation, fraudulent inducement, negligent misrepresentation and contribution. KPMG amended these
cross-claims on February 15, 2008. KPMG is seeking unspecified compensatory, consequential, restitutionary,
rescissory and punitive damages, including purported damages related to legal costs, exposure to legal liability,
costs and expenses of responding to investigations related to our accounting, lost fees, attorneys’ fees, costs
and expenses. Our motion to dismiss certain of KPMG’s cross-claims was denied.
In addition, two individual securities cases were 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 certain current and former officers and directors. The second individual securities case was filed on
January 25, 2006 by 25 affiliates of Franklin Templeton Investments against us, KPMG LLP, and certain
current and former officers and directors. On April 27, 2007, KPMG also filed cross-claims against us in this
action that are essentially identical to those it alleges in the consolidated shareholder class action case. 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. The second amended complaints each added
Radian Guaranty Inc. as a defendant.
The individual securities actions asserted 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 sought unspecified compensatory and punitive damages, attorneys’
fees, and other fees and costs. In addition, the Evergreen plaintiffs sought an award of treble damages under
state law. The court consolidated these individual securities actions into the consolidated shareholder class
action for pretrial purposes and possibly through final judgment.
On July 31, 2007, the court dismissed all of the individual securities plaintiffs’ claims against the current and
former officer and director defendants, except for Franklin D. Raines and J. Timothy Howard. In addition, the
court dismissed the individual securities plaintiffs’ state law claims and certain of their federal securities law
claims against us, Franklin D. Raines, J. Timothy Howard and Leanne Spencer. It also limited the individual
securities plaintiffs’ insider trading claims against Franklin D. Raines, J. Timothy Howard and Leanne
Spencer. On February 12, 2008 and February 15, 2008, respectively, upon motions by the plaintiffs to dismiss
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