Former Fannie Mae Chairman Franklin Raines was dropped from a securities fraud lawsuit brought against him by shareholders for conduct related to the company’s $6.3 billion overstatement of earnings from 2001 to 2004.
U.S. District Judge Richard Leon in Washington ruled today that the shareholders couldn’t prove “either an intent to deceive or an extreme departure from the standard of ordinary care” on the part of Raines when reporting on the mortgage finance company’s financial condition.
“The securities fraud laws are not a means for shareholders to recover for all losses, no matter how sizable or sudden,” Leon said in his 30-page ruling. “This court concludes that plaintiffs have failed to put forth sufficient evidence from which a reasonable jury could find that Raines had such an intent.”
The shareholders sued in 2004. Federal investigators in 2006 accused Raines, 63, and other executives of overstating profit from 2001 to June 2004 to meet targets and trigger bonuses. Raines, who was Washington-based Fannie Mae (FNMA)’s chairman and chief executive officer from January 1999 to December 2004, denied the allegations.
Raines didn’t immediately respond to a telephone message seeking comment on today’s ruling.
The Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio are the lead plaintiffs against Fannie Mae, two other former executives and KPMG, a former company auditor.
Steven Toll, a lawyer for the shareholders, didn’t immediately respond to an e-mail message seeking comment on the ruling.
The case is Federal National Mortgage Association Securities, Derivative and “ERISA” Litigation, 04-cv-01639, U.S. District Court, District of Columbia (Washington).
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