A federal judge has named two Ohio public retirement funds to lead a class of plaintiffs in a shareholder lawsuit against mortgage buyer Fannie Mae and some of its executive officers.
Ohio Attorney General Jim Petro filed the securities fraud, class-action lawsuit on behalf of the Ohio Public Employees Retirement System and the State Teachers Retirement System, alleging Fannie Mae manipulated its earnings to artificially inflate the price of its common stock.
The suit was filed in U.S. District Court in November, and represents shareholders who purchased Fannie Mae stock between Oct. 11, 2000 and Sept. 22, 2004.
Judge Richard J. Leon of the U.S. District Court for the District of Columbia granted the motion for the two Ohio public retirement funds to be named lead plaintiffs. The complaint alleges Fannie Mae and its officers violated the Securities Exchange Act and Securities and Exchange Commission rules by not disclosing the company failed to apply generally accepted accounting procedures, lacked sufficient internal auditing controls, and failed to report the volatility of the company’s earnings.
“As lead plaintiff we will use our position to advocate for the creation of stronger corporate governance measures that will restore security and trust in the American financial system,” Petro said in a statement.
Petro filed a similar suit against Fannie Mae’s corporate cousin Freddie Mac last year when Freddie Mac was found to have used improper accounting methods.
Fannie and Freddie regulator, the Office of Federal Housing Enterprise Oversight, in September released a report charging Fannie Mae had used improper “cookie jar” reserve accounting – setting aside large cash reserves to reduce revenues in some years so they could be used in other years when the company needed them. Since the report was released, Fannie Mae has been targeted by several class-action lawsuits and is being investigated by the SEC and the Justice Department.
Fannie Mae is shareholder-owned, but holds a critical government charter for the housing industry. The company buys mortgages, repackages them and sells them to investors in order to keep a constant flow of funds in the nation’s home loan industry.
Fannie Mae in late December announced the early retirement of CEO Franklin Raines, and the resignation of chief financial officer Timothy Howard.
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