Fannie Mae settles shareholder lawsuit for $170 million

NEW YORK (Reuters) - Fannie Mae has reached a $170 million settlement of a lawsuit accusing it of misleading shareholders about its finances, risk management and mortgage exposure before it was seized by the U.S. government during the 2008 financial crisis.

The settlement requires court approval, and was disclosed in a Friday filing with the U.S. District Court in Manhattan.

It allocates $123.8 million to common shareholders and $46.2 million to holders of preferred stock between Nov. 8, 2006 and Sept. 5, 2008.

Fannie Mae and the smaller Freddie Mac were seized by the federal government on Sept. 7, 2008 and put into a conservatorship, where they remain under the control of the Federal Housing Finance Agency.

The FHFA and Fannie Mae did not immediately respond to requests for comment.

Shareholders, who are seeking class action status, alleged that Fannie Mae defrauded them and artificially inflated its stock by issuing false and misleading statements about its risk management, capitalization, accounting practices, and exposure to subprime and low-documentation "Alt-A" mortgages.

The lead plaintiffs are the Massachusetts Pension Reserves Investment Management Board, the State-Boston Retirement Board and the Tennessee Consolidated Retirement System.

They said the settlement averted potential "numerous and substantial risks" of continuing the lawsuit, after similar litigation against Freddie Mac was dismissed last year.

"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," Daniel Greene, the chairman of State-Boston, said in a statement.

The law firms Labaton Sucharow and Berman DeValerio, which represent common shareholders, and Kaplan Fox Kilsheimer, which represents holders of preferred stock, plan to seek fees of as much as 20 percent of the settlement fund, court papers show.

A separate lawsuit over Fannie Mae's disclosures was brought in 2011 by the U.S. Securities and Exchange Commission against former Chief Executive Daniel Mudd and former Chief Risk Officer Enrico Dallavecchia, and remains pending.

The SEC filed a similar lawsuit against former Freddie Mac officials, including onetime Chief Executive Richard Syron.

The case is In re: Fannie Mae 2008 Securities Litigation, U.S. District Court, Southern District of New York, No. 08-07831.

(Reporting by Jonathan Stempel in New York; Editing by Chris Reese and Diane Craft)

WhatsAppFacebookTwitterLinkedinBeloudBluesky