Fannie Mae 2011 Annual Report Download - page 370

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Given the preliminary stage of this lawsuit, the absence of a specified demand or claim by the plaintiff, and the
substantial and novel legal questions that remain, we are currently unable to estimate the reasonably possible loss
or range of loss arising from this litigation.
Smith v. Fannie Mae, et al.
This individual securities action was originally filed on February 25, 2010, by plaintiff Edward Smith against
Fannie Mae and certain of its former officers as well as several underwriters in the U.S. District Court for the
Central District of California. On April 12, 2010, this case was transferred to the Southern District of New York
for coordination with In re Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation.
Plaintiff filed an amended complaint on April 19, 2011, which alleges violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; violations of Section 20(a) of the
Securities Exchange Act of 1934; common law fraud and negligence claims; and California state law claims for
misrepresentation in connection with Fannie Mae’s December 2007 $7.0 billion offering of 7.75%
fixed-to-floating rate non-cumulative preferred Series S stock. Plaintiff seeks relief in the form of rescission,
actual damages (including interest), and exemplary and punitive damages. On July 11, 2011, defendants filed
motions to dismiss the amended complaint, which are now fully briefed and remain pending. On February 1,
2012, plaintiff sought leave to amend his complaint to add new factual allegations and the court granted
plaintiff’s motion.
Given the preliminary stage of this lawsuit, the absence of a specified demand or claim by the plaintiff, and the
substantial and novel legal questions that remain, we are currently unable to estimate the reasonably possible loss
or range of loss arising from this litigation.
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.
On December 15, 2011, we entered into a non-prosecution agreement with the SEC. The agreement requires us
to cooperate with the SEC in enforcement proceedings brought against certain of our former officers, but does
not require us to pay a monetary penalty.
Investigation by the Department of Justice
On March 15, 2010, we received a Grand Jury subpoena for documents in connection with a Department of
Justice investigation into Fannie Mae’s disclosure practices. Fannie Mae has completed its production of
documents in response to the subpoena.
Unconditional Purchase and Lease Commitments
We have unconditional commitments related to the purchase of loans and mortgage-related securities. These
include both on- and off-balance sheet commitments wherein a portion of these have been recorded as derivatives
in our consolidated balance sheets. Unfunded lending represents off-balance sheet commitments for the
unutilized portion of lending agreements entered into with multifamily borrowers.
We lease certain premises and equipment under agreements that expire at various dates through 2029. Some of
these leases provide for payment by the lessee of property taxes, insurance premiums, cost of maintenance and
other costs. Rental expenses for operating leases were $40 million, $35 million and $62 million for the years
ended December 31, 2011, 2010 and 2009, respectively.
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