This complaint alleges a scandal of tremendous proportion, involving billions of dollars, that combines the worst aspects of Washington, D.C. politics and Wall Street financial and accounting practices. Plaintiff seeks to recover damages, on behalf of itself and all others similarly situated, caused by defendants' violations of federal securities laws.
Fannie Mae is one of the biggest financial institutions in the world, with $1 trillion in reported assets and $961 billion in reported debt as of December 31, 2003. Both Fannie Mae and Freddie Mac, its smaller rival, are shareholder-owned but charted by the United States Congress for the purpose of maintaining liquidity in the secondary mortgage market.

The complaint alleges that, throughout the Class Period, defendants repeatedly presented Fannie Mae as a conservative, stable and safe investment, and boasted of Fannie Mae's steady quarter-over-quarter earnings increases, even in times of market volatility. Defendants stated that, "Fannie Mae has a record of growth and stability in earnings that few companies in any industry can match. We have consistently shown ourselves to be one of the strongest and most reliable financial institutions in America." In 1998 the Company set itself a public goal of doubling its earnings per share in the five years ending in 2003 and, throughout the class period, reported on its healthy progress toward achievement of the goal. In July 2000, the Company boasted of having achieved 50 consecutive quarters of "record operating earnings per common share," and throughout the Class Period, attributed its success, in part, to "proven risk management capabilities." The Company issued numerous other false and misleading statements and presented the public with materially false and misleading financial statements that created the illusion that Fannie Mae was a safe and steady earner and largely immune to interest rate fluctuations and other macro-economic factors that, in comparable institutions, resulted in earnings volatility.

The truth emerged on September 22, 2004. On that date, Fannie Mae released a statement that the Office of Federal Housing Enterprise Oversight would release a report which stated in relevant part that Fannie Mae: (a) applied accounting methods and practices that do not comply with GAAP in accounting for the enterprise's derivatives transactions and hedging activities; (b) employed an improper "cookie jar" reserve in accounting for amortization of deferred price adjustments under GAAP; (c) tolerated related internal control deficiencies; (d) in at least one instance deferred expenses apparently to achieve bonus compensation targets; and (e) maintained a corporate culture that emphasized stable earnings at the expense of accurate financial disclosures. The report further stated that "the matters detailed in this report are serious and raise doubts concerning the validity of previously reported financial results, the adequacy of regulatory capital, the quality of management supervision, and the overall safety and soundness of the Enterprise."

After Fannie Mae released its statement, Fannie Mae shares, which had opened at $74.18 that day, fell $4.18, or 5.6 percent, to $70.00 and closed out the day at $70.69. After the close of the market, the OFHEO issued its full 198-page report and, subsequently, in a meeting with reporters, OFHEO officials stated that the vast majority of Fannie Mae's $1 trillion derivative portfolio was tainted, and that those hedge relationships would likely get "unwound" if Fannie Mae restated past earnings so that gains and losses that had previously been recorded on Fannie Mae's balance sheet would be booked under income. On release of the full OFHEO Report, Fannie Mae shares fell another 5.9 percent to a low of $66.50 on September 23, 2004, for a two day decline of $7.68, or 10.3 percent.
If you bought the securities of Fannie Mae between January 13, 2000 and September 22, 2004, you may, no later than November 22, 2004, request that the Court appoint you as lead plaintiff. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member's claim is typical of the claims of other class members, and that the class member will adequately represent the class. Under certain circumstances, one or more class members may together serve as "lead plaintiff." Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff. You may retain Milberg Weiss Bershad & Schulman LLP, or other counsel of your choice, to serve as your counsel in this action.