Fannie Mae 2009 Annual Report Download - page 386

Comprehensive Investment Services v. Mudd, et al.
On May 13, 2009, Comprehensive Investment Services, Inc. filed an individual securities action against certain
of our former officers and directors, and certain of our underwriters in the Southern District of Texas. Plaintiff
alleges violations of Section 12(a)(2) of the Securities Act of 1933; violation of § 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; violation of § 20(a) of the Securities
Exchange Act of 1934; and violations of the Texas Business and Commerce Code, common law fraud, and
negligent misrepresentation in connection with Fannie Mae’s May 2008 $2 billion offering of 8.25% non-
cumulative preferred Series T stock. The complaint seeks various forms of relief, including rescission,
damages, interest, costs, attorneys’ and experts’ fees, and other equitable and injunctive relief. On July 7,
2009, the Judicial Panel on Multidistrict Litigation transferred the case to the Southern District of New York,
where it is currently coordinated with In re Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae
ERISA Litigation for pretrial purposes.
Investigation by the Securities and Exchange Commission
On September 26, 2008, we received notice of an ongoing investigation into Fannie Mae by the SEC
regarding certain accounting and disclosure matters. On January 8, 2009, the SEC issued a formal order of
investigation. We are cooperating with this investigation.
Investigation by the Department of Justice
On September 26, 2008, we received notice of an ongoing federal investigation by the U.S. Attorney for the
Southern District of New York into certain accounting, disclosure and corporate governance matters. In
connection with that investigation, Fannie Mae received a Grand Jury subpoena for documents. That subpoena
was subsequently withdrawn. However, we have been informed that the Department of Justice is continuing an
investigation. We are cooperating with this investigation.
Escrow Litigation
Casa Orlando Apartments, Ltd., et al. v. Federal National Mortgage Association (formerly known as Medlock
Southwest Management Corp., et al. v. Federal National Mortgage Association)
A complaint was filed against us in the U.S. District Court for the Eastern District of Texas (Texarkana
Division) on June 2, 2004, in which plaintiffs purport to represent a class of multifamily borrowers whose
mortgages are insured under Sections 221(d)(3), 236 and other sections of the National Housing Act and are
held or serviced by us. The complaint identified as a proposed class low- and moderate-income apartment
building developers who maintained uninvested escrow accounts with us or our servicer. Plaintiffs Casa
Orlando Apartments, Ltd., Jasper Housing Development Company and the Porkolab Family Trust No. 1 allege
that we violated fiduciary obligations that they contend we owed to borrowers with respect to certain escrow
accounts and that we were unjustly enriched. In particular, plaintiffs contend that, starting in 1969, we misused
these escrow funds and are therefore liable for any economic benefit we received from the use of these funds.
The plaintiffs seek a return of any profits, with accrued interest, earned by us related to the escrow accounts at
issue, as well as attorneys’ fees and costs. Our motions to dismiss and for summary judgment with respect to
the statute of limitations were denied. Plaintiffs filed an amended complaint on December 16, 2005. On
July 13, 2009, the Court denied plaintiffs’ motion for class certification. Plaintiffs have appealed the Court’s
denial to the U.S. Court of Appeals for the Fifth Circuit and filed their opening brief on December 14, 2009.
We filed an opposition brief on January 20, 2010.
F-128
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)