Fannie Mae 2008 Annual Report Download - page 404

the Southern District of New York for coordinated or consolidated pretrial proceedings. On February 13, 2009,
the district court entered an order appointing Tennessee Consolidated Retirement System as lead plaintiff on
behalf of purchasers of preferred stock, and appointing the Massachusetts Pension Reserves Investment
Management Board and the Boston Retirement Board as lead plaintiffs on behalf of common stockholders.
Shareholder Derivative Lawsuits
In re Fannie Mae Shareholder Derivative Litigation
Beginning on September 28, 2004, ten plaintiffs filed twelve shareholder derivative actions in three different
federal district courts and the Superior Court of the District of Columbia against certain of our current and
former officers and directors and against us as a nominal defendant. All of these shareholder derivative actions
have been consolidated into the U.S. District Court for the District of Columbia and the court entered an order
naming Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust and Wayne County Employees’
Retirement System as co-lead plaintiffs. A consolidated complaint was filed on September 26, 2005 against
certain of our current and former officers and directors and against us as a nominal defendant. The
consolidated complaint alleges that the defendants purposefully misapplied GAAP, maintained poor internal
controls, issued a false and misleading proxy 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. The 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 with the U.S. Court of
Appeals for the District of Columbia. On April 16, 2008, the Court of Appeals granted lead plaintiffs’ motion
to file a second amended complaint, which added only additional jurisdictional allegations.
On August 8, 2008, the U.S. Court of Appeals for the D.C. Circuit upheld the District Court’s dismissal of the
consolidated derivative action. On September 4, 2008, the plaintiffs filed a motion for rehearing en banc. On
September 10, 2008, the Court of Appeals issued an order calling for a response to the petition to be filed by
September 25, 2008. On September 24, 2008, we filed a motion to invoke the 45-day stay available under
12 U.S.C. § 4617(b)(1) due to the conservatorship. On September 29, 2008, the Court granted our motion and
held the case in abeyance pending further order of the Court; and further directed the parties to file motions to
govern on November 10, 2008. On November 10, 2008, FHFA filed a motion to govern further proceedings, to
substitute itself, as conservator, for the appellants and to dismiss the petition for rehearing. Defendants also
filed a motion to continue to hold the briefing on Plaintiffs’ petition for rehearing en banc in abeyance,
pending the resolution of FHFA’s Motion to Substitute the Conservator in Place of the Shareholder Plaintiffs-
Appellants and to Withdraw the Petition for Panel Rehearing or Rehearing En Banc. On December 24, 2008,
the Court granted FHFA’s motion, and denied plaintiff’s motion. On February 9, 2009, the Court of Appeals
entered its mandate affirming the District Court’s dismissal.
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 in the U.S. District Court for District of
Columbia 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
F-126
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)