Fannie Mae 2013 Annual Report Download - page 337

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-113
and risk management disclosures to proceed. The court granted defendants’ motions to dismiss the state law claims, as well as
the federal claims based on alleged violations of GAAP, and also dismissed two of our former officers from the action.
Fannie Mae filed its answer to the amended complaint on October 29, 2012. Discovery is ongoing.
Given the stage of this lawsuit, the substantial and novel legal questions that remain, and our substantial defenses, we are
currently unable to estimate the reasonably possible loss or range of loss arising from this litigation.
Smith v. Fannie Mae
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. Plaintiff filed a second amended complaint, allowing
plaintiff’s Securities Exchange Act claims premised on Fannie Mae’s subprime and Alt-A disclosures and risk management
disclosures to proceed, but granted defendants’ motions to dismiss the state law claims. Fannie Mae filed its answer to the
amended complaint on October 29, 2012. Discovery is ongoing.
Given the stage of this lawsuit, the substantial and novel legal questions that remain, and our substantial defenses, we are
currently unable to estimate the reasonably possible loss or range of loss arising from this litigation.
Senior Preferred Stock Purchase Agreements Litigation
A number of putative class action lawsuits were filed in the U.S. District Court for the District of Columbia against us, FHFA
as our conservator, Treasury and Freddie Mac from July through September 2013 by shareholders of Fannie Mae and/or
Freddie Mac challenging the August 2012 amendment to each company’s senior preferred stock purchase agreement with
Treasury. These lawsuits were consolidated and, on December 3, 2013, plaintiffs (preferred and common shareholders of
Fannie Mae and/or Freddie Mac) filed a consolidated class action complaint in the U.S. District Court for the District of
Columbia against us, FHFA as our conservator, Treasury and Freddie Mac (“In re Fannie Mae/Freddie Mac Senior Preferred
Stock Purchase Agreement Class Action Litigations”). The preferred shareholder plaintiffs allege that the August 2012
amendments to the terms of the senior preferred stock purchase agreements providing that Fannie Mae and Freddie Mac
would pay dividends equal to their entire net worth (minus a specified capital reserve amount) (“the net worth sweep
provisions”) nullified certain of the shareholders’ rights, particularly the right to receive dividends. The common shareholder
plaintiffs allege that the August 2012 amendment constituted a taking of their property by requiring that all future profits of
Fannie Mae and Freddie Mac are paid to Treasury. Plaintiffs allege claims for breach of contract and breach of the implied
covenant of good faith and fair dealing against us, FHFA and Freddie Mac, a takings claim against FHFA and Treasury, and a
breach of fiduciary duty claim derivatively on our and Freddie Mac’s behalf against FHFA and Treasury. Plaintiffs seek to
represent several classes of preferred and/or common shareholders of Fannie Mae and/or Freddie Mac who held stock as of
the public announcement of the August 2012 amendment. Plaintiffs seek unspecified damages, equitable and injunctive relief,
and costs and expenses, including attorneys’ fees.
A non-class action suit, Arrowood Indemnity Company v. Fannie Mae, was filed in the U.S. District Court for the District of
Columbia on September 20, 2013 by preferred shareholders against us, FHFA as our conservator, the Director of FHFA (in
his official capacity), Treasury, the Secretary of the Treasury (in his official capacity) and Freddie Mac. Plaintiffs bring claims
for breach of contract and breach of the implied covenant of good faith and fair dealing against us, FHFA and Freddie Mac,
and claims for violation of the Administrative Procedure Act against the FHFA and Treasury defendants, alleging that the net
worth sweep provisions nullified certain rights of the preferred shareholders, particularly the right to receive dividends.
Plaintiffs seek damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees.
On January 17, 2014, defendants filed motions to dismiss both the class action and non-class action suits pending in the U.S.
District Court for the District of Columbia. On February 12, 2014, certain plaintiffs filed a motion seeking discovery from
Treasury and FHFA related to the Administrative Procedure Act and fiduciary duty claims against those agencies, and
requesting a stay of briefing on defendants’ motions to dismiss until after the discovery issue is resolved.