$153 Million Settlement in Fannie Mae Securities Fraud Class Action

In September 2004, the federal regulator overseeing Fannie Mae, the Office of Federal Housing Enterprise Oversight, announced that the mortgage giant had systematically misapplied generally accepted accounting principles to distort its financial results and 'smooth' reported earnings from quarter to quarter. The disclosure wiped billions off Fannie Mae's market capitalization virtually overnight. Investors who had purchased Fannie Mae stock or options between April 17, 2001 and December 22, 2004 found themselves holding securities whose stated value had been built, in significant part, on false numbers.

Two large Ohio public pension funds, the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio, had accumulated substantial Fannie Mae positions on behalf of their beneficiaries during those years. After the accounting fraud came to light, both funds were appointed lead plaintiffs in the consolidated class action filed in the U.S. District Court for the District of Columbia. The complaint named Fannie Mae, several of its former senior executives, and KPMG, which had audited Fannie Mae's financials throughout the class period. Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

What followed was one of the most document-intensive securities litigations in recent memory. Over the course of nearly a decade, counsel reviewed more than 67 million pages of documents, deposed 123 fact witnesses, and retained or cross-examined 35 expert witnesses. Bill Markovits of Markovits, Stock and DeMarco served as lead counsel for the class in the later stages of the litigation, alongside co-counsel Bernstein Liebhard and Cohen Milstein Sellers and Toll.

The parties reached a settlement in May 2013. On December 5, 2013, U.S. District Judge Richard J. Leon granted final approval of a $153 million settlement fund covering approximately one million purchasers of Fannie Mae securities during the class period. At the approval hearing, Judge Leon characterized it as one of the largest securities class action settlements since the Private Securities Litigation Reform Act took effect in 1996. Plaintiff's counsel sought $29.1 million in attorneys' fees, representing 22 percent of the settlement, plus $15.3 million in litigation expenses accumulated over nine years of pursuing the case.

Fannie Mae and KPMG denied wrongdoing as a condition of the settlement. No reduction or remittitur of the settlement fund occurred on appeal.