Fannie Mae 2010 Annual Report Download - page 393

financial condition. We note, however, that in light of the uncertainties involved in such actions and
proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the
reserves we have currently accrued. For certain other legal actions or proceedings, we cannot reasonably
estimate such losses or ranges of losses, particularly for proceedings that are in their early stages of
development, where plaintiffs seek substantial or indeterminate damages, or where there may be novel or
unsettled legal questions relevant to the proceedings. For these matters, we have not established a reserve.
Given the uncertainties involved in any action or proceeding, regardless of whether we have established a
reserve, the ultimate resolution of any matter may be material to our operating results for a particular period,
depending on, among other factors, the size of the loss or liability imposed and the level of our net income or
loss for that period. Based on our current knowledge with respect to the lawsuits described below, we believe
we have valid defenses to the claims in these lawsuits and intend to defend these lawsuits vigorously
regardless of whether or not we have recorded a loss reserve.
In addition to the matters specifically described below, we are involved in a number of legal and regulatory
proceedings that arise in the ordinary course of business that we do not expect will have a material impact on
our business. We have advanced fees and expenses of certain current and former officers and directors in
connection with various legal proceedings pursuant to indemnification agreements.
In re Fannie Mae Securities Litigation
Fannie Mae is a defendant in a consolidated class action lawsuit initially filed in 2004 and currently pending
in the U.S. District Court for the District of Columbia. In the consolidated complaint filed on March 4, 2005,
lead plaintiffs Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio
allege that we and certain former officers, as well as our former outside auditor, 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. Plaintiffs contend that Fannie Mae’s accounting statements were
inconsistent with GAAP requirements relating to hedge accounting and the amortization of premiums and
discounts, and seek unspecified compensatory damages, attorneys’ fees, and other fees and costs. On
January 7, 2008, 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 October 17, 2008, FHFA, as conservator for Fannie Mae, intervened in this case.
2008 Class Action Lawsuits
Fannie Mae is a defendant in two consolidated class actions filed in 2008 and currently pending in the
U.S. District Court for the Southern District of New York—In re Fannie Mae 2008 Securities Litigation and In
re 2008 Fannie Mae ERISA Litigation. On February 11, 2009, the Judicial Panel on Multidistrict Litigation
ordered that the cases be coordinated for pretrial proceedings. On October 13, 2009, the Court entered an
order allowing FHFA to intervene in—In re Fannie Mae 2008 Securities Litigation.
In re Fannie Mae 2008 Securities Litigation
In a consolidated complaint filed on June 22, 2009, lead plaintiffs Massachusetts Pension Reserves Investment
Management Board and Boston Retirement Board (for common shareholders) and Tennessee Consolidated
Retirement System (for preferred shareholders) allege that we, certain of our former officers, and certain of
our underwriters violated Sections 12(a)(2) and 15 of the Securities Act of 1933. Lead plaintiffs also allege
that we, certain of our former officers, and our outside auditor, violated Sections 10(b) (and Rule 10b-5
promulgated thereunder) and 20(a) of the Securities Exchange Act of 1934. Lead plaintiffs purport to represent
a class of persons who, between November 8, 2006 and September 5, 2008, inclusive, purchased or acquired
(a) Fannie Mae common stock and options or (b) Fannie Mae preferred stock. Lead plaintiffs seek various
F-135
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)