Fannie Mae 2012 Annual Report Download - page 340

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-106
For the remaining legal actions or proceedings, including those where there is only a reasonable possibility that a loss may be
incurred, we are not currently able to estimate the reasonably possible losses or ranges of losses and we have not established
a reserve with respect to those actions or proceedings. We are often unable to estimate the possible losses or ranges of losses,
particularly for proceedings that are in their early stages of development, where plaintiffs seek substantial or indeterminate
damages, where there may be novel or unsettled legal questions relevant to the proceedings, or where settlement negotiations
have not occurred or progressed. Further, as noted above, FHFA’s regulation and the Director of FHFA’s assertion creates
additional uncertainty with respect to certain cases.
Given the uncertainties involved in any action or proceeding, regardless of whether we have established a reserve, the
ultimate resolution of certain of these matters 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 matters described below, we believe we have valid defenses to the claims in these
proceedings and intend to defend these matters 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 or financial
condition. 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 in 2005, lead plaintiffs Ohio Public
Employees Retirement System and 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. In 2011, the parties filed various motions for summary
judgment. On September 20, 2012, the court granted summary judgment to defendant Franklin D. Raines, Fannie Mae’s
former Chief Executive Officer, on all claims against him. On October 16, 2012, the court granted summary judgment to
defendant J. Timothy Howard, Fannie Mae’s former Chief Financial Officer, on all claims against him. On November 20,
2012, the court granted summary judgment to defendant Leanne Spencer, Fannie Mae’s former Controller, on all claims
against her. The other motions for summary judgment remain pending.
As discussed above, FHFA adopted a regulation in 2011, that provides in part that while we are in conservatorship, FHFA will
not pay claims by our current or former shareholders, unless the Director of FHFA determines it is in the interest of the
conservatorship. FHFA’s regulation has been challenged by lead plaintiffs in a separate lawsuit also pending in the U.S.
District Court for the District of Columbia.
In September and December 2010, plaintiffs served expert reports claiming damages to plaintiffs under various scenarios
ranging cumulatively from $2.2 billion to $8.6 billion. Given the substantial and novel legal questions that remain, including
those raised by FHFA’s regulation and the Director of FHFA’s determination, we are currently unable to estimate the
reasonably possible loss or range of loss arising from this litigation.
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.
In re Fannie Mae 2008 Securities Litigation
In a consolidated amended 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