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Fannie Mae and KPMG Agree to Pay $153M Class Action Settlement

Federal National Mortgage Association (Fannie Mae) and accounting firm KPMG LLP (KPMG) agreed to pay $153 million to settle an investor class action lawsuit filed in 2004 by Ohio pension funds.  

The lawsuit accused Fannie Mae of overstating its earnings by $6.3 billion and alleged that the company and KPMG violated federal securities laws by issuing false and misleading financial statements, all of which artificially inflated the price of Fannie Mae common stock from April 2001 through December 2004. 

“Given the immediate and substantial benefit of $153 million, the risk in establishing settling defendants’ liability and proving damages, and the potential limitation on the ability of Fannie Mae to satisfy a judgment,” the settlement “represents an outstanding recovery,” Ohio Attorney General Mike DeWine said in memo filed in support of the proposed settlement. 

“We are satisfied with the outcome and pleased to put the matter behind us,” Bradley Lerman, Fannie Mae’s general counsel, said in an e-mailed statement. “Fannie Mae is focused on enabling people to buy, refinance or rent a home and helping struggling homeowners avoid foreclosure.” 

According to the agreement, Fannie Mae and KPMG will each pay half of the settlement.   

“KPMG determined that it was in the firm’s best interest to put this matter behind us and avoid the significant additional cost, and the distraction and inherent uncertainty, of protracted litigation,” Manuel Goncalves, the accounting firm’s director of national media relations, said in an e-mailed statement. 

The settlement is subject to approval from U.S. District Judge Richard Leon in Washington, D.C. 

 The class of plaintiffs covered by the settlement “generally encompasses all purchasers of Fannie Mae common stock and call options, and all sellers of Fannie Mae put options, for the period of April 17, 2001 through December 22, 2004, who suffered damages,” according to a statement issued by DeWine. 

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