On October 25, 2004, a shareholder derivative lawsuit was filed against Fannie Mae’s Board of Directors and several of its top officers. The action arises out of the well-publicized scandal, in which government investigators found that Fannie Mae engaged in rampant accounting violations and the inflation and “smoothing” of its revenues over a seven year period. These accounting violations resulted in Fannie Mae announcing a $9 billion restatement - the second largest in U.S. history - and was the subject of Congressional hearings, and a number of reports by the governmental body, Office of Federal Housing Enterprise Oversight (OFHEO).

The derivative action seeks to recover, among other things, the over $400 million fine recently levied upon the quasi-governmental institution and the earnings and bonuses awarded to its executives during that period, including its former chief executive officer, Franklin D. Raines.

The Fannie Mae litigation is pending in the United States District for the District of Columbia before the Judge Richard J. Leon, and is being coordinated with related securities and ERISA class actions. M&S is actively participating in the litigation, and together with other counsel, are currently reviewing thousands of documents which Fannie Mae produced to government investigators.

Fannie Mae is the country’s largest source of mortgage financing and was chartered by the United States Congress for the purpose of maintaining liquidity in the secondary mortgage market to increase the availability of home ownership for low and middle-income Americans.