In re Fannie Mae 2008 Securities Litigation

On March 3, 2015, the court finally approved a $170 million settlement with the Federal National Mortgage Association (Fannie Mae).  The settlement will benefit thousands of class members.

State-Boston Retirement System Chairman Daniel J. Greene said, "We're extremely pleased with the results, particularly in light of the dismissal of a similar lawsuit against Fannie Mae's sibling company, Freddie Mac, which was recently affirmed by a federal appellate court.  Unlike the plaintiffs in the Freddie Mac case, we were able to successfully allege that investors' losses were caused by Fannie Mae's statements and actions rather than by the financial crisis."

On June 22, 2009, lead plaintiffs, State-Boston Retirement System, Massachusetts Pension Reserves Investment Management Board, and Tennessee Consolidated Retirement System, filed a Joint Consolidated Class Action Complaint alleging that Fannie Mae and certain of its current and former senior officers violated federal securities laws during the class period, November 8, 2006 to September 5, 2008, by making false and misleading statements concerning the company's internal controls and risk management with respect to Alt-A and subprime mortgages.  Lead plaintiffs also alleged that defendants made misstatements with respect to Fannie Mae's core capital, deferred tax assets, other-than-temporary losses, and loss reserves.

The case is In re Fannie Mae 2008 Securities Litigation, No. 08-cv-7831 (S.D.N.Y.).  Lead plaintiffs for the proposed common shareholder class are State-Boston Retirement System and the Massachusetts Pension Reserves Investment Management.  Lead plaintiff for the proposed preferred shareholder class is the Tennessee Consolidated Retirement System.  Defendants are Fannie Mae and certain of its current and former senior officers.

Background

Fannie Mae's exposure to high-risk mortgages ultimately prompted its regulator, the Federal Housing and Finance Agency (FHFA), to announce on September 7, 2008, that it had placed the company into conservatorship.  The first day of trading following FHFA's announcement, Fannie Mae's share price plummeted 90 percent from $7.04 to $0.73, causing billions of dollars in losses to investors, in addition to earlier losses caused by a series of partial disclosures of the company's fraudulent and negligent acts.

On July 13, 2009, defendants filed a joint motion to dismiss claims brought under the Securities Act.  On November 25, 2009, the court issued an order granting defendants' motion and dismissing lead plaintiffs' claims.

On September 18, 2009, defendants filed five motions to dismiss claims brought under the Exchange Act.  On September 30, 2010, the court issued an order granting in part and denying in part defendants' motions.  Specifically, the court denied defendants' motions with respect to the claims based on Fannie Mae's internal controls and risk management against Fannie Mae and former Fannie Mae senior executives Daniel Mudd and Enrico Dallavecchia; however, the court granted defendants' motions in all other respects.

On December 16, 2011, the SEC filed a civil enforcement action against Mudd, Dallavecchia, and a third former Fannie Mae senior executive.  The SEC complaint alleges, among other things, that Fannie Mae misclassified certain types of mortgages as prime when the company had information showing that those mortgages performed as bad or worse than subprime and Alt-A loans.  The SEC also entered into a non-prosecution agreement with Fannie Mae, in which the company, without admitting or denying liability, accepted responsibility for its conduct and agreed to cooperate with the SEC action.

On March 2, 2012, lead plaintiffs filed a Second Amended Complaint (SAC), incorporating the allegations in the SEC complaint.  On August 30, 2012, the court issued an order denying defendants' motions to dismiss the SAC, as well as defendants' motions to strike, in their entirety.