Fannie Mae 2013 Annual Report Download - page 335

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-111
plaintiffs seek indeterminate or unspecified damages, where there may be novel or unsettled legal questions relevant to the
proceedings, or where settlement negotiations have not occurred or progressed.
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.
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 also advanced fees and expenses of certain current and former officers and directors in connection with
various legal proceedings pursuant to our bylaws and indemnification agreements.
In re Fannie Mae Securities Litigation
Fannie Mae was a defendant in a consolidated class action lawsuit initially filed in 2004 that was 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 alleged 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 contended that Fannie Mae’s
accounting statements were inconsistent with GAAP requirements relating to hedge accounting and the amortization of
premiums and discounts, and sought 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 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.
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.
On April 10, 2013, the parties reached an agreement in principle to settle this litigation, subject to court approval. On May 7,
2013, the parties filed a stipulation of settlement with the court. On June 7, 2013, the court granted preliminary approval of
the settlement, approved the form and manner of notice to the class, stayed non-settlement related proceedings, and set
certain other deadlines related to the settlement. On October 31, 2013, the court held a hearing to evaluate the fairness of the
settlement to the class, and on December 5, 2013, granted final approval of the settlement, dismissed the case with prejudice,
and entered an order and judgment effecting the settlement. Fannie Mae’s contribution to the settlement did not have a
material impact on our results of operations or financial condition. On January 9, 2014, Rinis Travel Service, Inc. Profit
Sharing Trust U.A. 61-1989, a purported class member, appealed the court’s approval order with the U.S. Court of Appeals
for the District of Columbia. On January 17, 2014, plaintiffs-appellees filed a motion to dismiss the Rinis appeal for lack of
standing and for sanctions. On February 6, 2014, the Court of Appeals issued an order requiring Rinis to show cause why its
appeal should not be dismissed. On January 29, 2014, an individual purported class member also appealed the settlement
approval, and plaintiffs-appellees moved to dismiss this appeal on February 6, 2014.
2008 Class Action Lawsuits and Related Proceedings
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 addition, two individual securities actions involving related facts and circumstances—Comprehensive
Investment Services v. Mudd and Smith v. Fannie Mae—were later filed and ultimately transferred to the same court for
coordination with the class actions.
In addition to these proceedings, certain underwriters have notified us that they have been named in various other actions
arising out of certain of Fannie Mae’s preferred stock offerings and may seek indemnification for any losses arising out of
those actions pursuant to the terms of our underwriting agreements with them.