The first class action lawsuit was filed last month arising out of the Fannie and Freddie bailout in the U.S. District Court in the Southern District of New York. The securities class action was filed on behalf of those who held publicly-traded securities of Fannie Mae between November 16, 2007 and September 5, 2008. That was before the federal government took over the company. Defendants in the suit are Stephen Ashley, chairman of Fannie Mae’s board; Daniel Mudd, Fannie’s president and chief executive officer; Stephen Swad, Fannie’s ex-chief financial officer; and Robert Levin, formerly the company’s executive vice president and chief business officer.
The complaint alleges that Fannie Mae’s publicly-disclosed financial results misrepresented the financial health of the company, and that the Defendants either made false statements or failed to disclose the truth to investors. It’s further alleged that as a result, the Defendants’ “fraudulent scheme” was successful in deceiving the public, artificially inflating the prices of publicly-traded Fannie Mae stock, and causing class members to buy Fannie Mae stock at those inflated prices.
According to the complaint, Mudd received over $14 million in compensation from Fannie Mae in 2006 and over $12 million in 2007; Levin received over $9.5 million in 2006 and over $8.4 million in 2007; Swad received over $4.8 million in 2007; and Ashley received over $500,000 in 2007. It’s alleged in the complaint:
Because of their positions within the company and their access to material non-public information available to them but not to the public, the individual defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations being made were then materially false and misleading.
The complaint details statements by the company in the fall of 2007 and spring of 2008 about its financial position and the capital raises Fannie Mae undertook. The four Defendants are accused of:
I predict there will be lots of litigation involving Freddie and Fannie – directly and indirectly – before too awfully long. There are lots of folks in high places who may be getting pretty nervous as this sordid tale unfolds.
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