Fannie Mae Securities Litigation

The Fannie Mae Securities Litigation involves a massive accounting fraud that spans a four year period. The action is pending before the Honorable Richard J. Leon of the United States District Court for the District of Columbia. The defendants are the Federal National Mortgage Association (“FNMA” or “Fannie Mae”), three senior officers (the “Individual Defendants”), and Fannie Mae’s outside auditor, KPMG LLP.

Plaintiffs allege that during the period April 17, 2001 through and including September 27, 2005 (the “Class Period”) Fannie Mae and its three most senior corporate officers intentionally misapplied accounting rules and engaged in other misconduct to distort financial results, “smooth out” earnings, reduce income statement volatility, and to maximize the Individual Defendants’ compensation. In addition, plaintiffs allege that defendant KPMG issued materially false and misleading audit reports in which the auditor certified Fannie Mae’s financial results and violated generally accepted auditing standards. Fannie Mae’s and KPMG’s false and misleading statements combined to cause Fannie Mae’s stock price to be artificially inflated throughout the Class Period.

On September 22, 2004, Fannie Mae announced that the Office of Federal Housing Enterprise Oversight (“OFHEO”) had found that Fannie Mae and the Individual Defendants intentionally misapplied accounting rules. In a 198-page report, OFHEO found that Fannie Mae’s accounting improprieties were “pervasive” and “reinforced by management.”

On September 27, 2004, OFHEO announced that it had entered into an agreement with the Fannie Mae Board of Directors requiring immediate action to address the improper accounting and inadequate controls detailed in OFHEO’s report. Following this announcement, Fannie Mae’s stock price dropped from $75.65 per share to $70.69 per share.

In addition to OFHEO, the United States Department of Justice and the Securities Exchange Commission (“SEC”) initiated investigations of Fannie Mae. On December 15, 2004, the SEC ordered Fannie Mae to restate its earnings going back to 2001, finding that Fannie Mae had violated Generally Accepted Accounting Principles. When Fannie Mae completed its restatements on December 6, 2006, previously reported earnings were reduced by a total of $6.3 billion.

The Lead Plaintiffs in the litigation are the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio. The plaintiffs’ attorneys are led by Bernstein Liebhard LLP, Co-Lead Counsel for the Lead Plaintiffs, and Waite, Schneider, Bayless & Chesley Co., L.P.A., Lead Counsel for the Lead Plaintiffs.