Fannie Mae has agreed to pay $170 million to shareholders to settle a consolidated class action alleging the federal mortgage giant misrepresented its exposure to subprime loans in the runup to the 2008 mortgage crisis. The Massachusetts Pension Reserves Investment Management Board and State Boston Retirement Board, the lead plaintiff, representing a class of common stockholders, and Tennessee Consolidated Retirement System, representing a class of preferred stockholders, filed a motion for preliminary approval of the settlement, which would clear Fannie Mae and its overseers at the Federal Housing Finance Agency of the claims that it violated the Securities Exchange Act of 1934. The settlement will be divided 73 percent to 27 percent between the groups, with $123.76 million going to the common stock class, and $46.24 million to the preferred stock class.
The consolidated suit traces its origin to September 2008, when FHFA Director James Lockhart announced that Fannie would be placed under conservatorship. Shortly thereafter, a complaint was filed by named plaintiff John A. Genovese against individual Fannie Mae directors and officers, alleging it violated the 1934 act. In March 2009, the court appointed the three pension boards as co-lead plaintiffs in the suit, and in April 2012, the three boards filed their operative second amended consolidated class action complaint.
It was alleged in the complaint that Fannie Mae downplayed its exposure to subprime and Alt-A loans, and that its gamble on the risky loans directly lead to its being placed under conservatorship. Alt-A loans are loans that were approved for borrowers with slightly higher credit scores than subprime borrowers but that had little to no documentation. The day after the announcement of Fannie Mae’s conservatorship, its stock price plummeted 90%, from $7.04 to $.073, causing billions of dollars in losses to investors.
Sources: Reuters and Law360.com
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.