Fannie Mae Settles Accounting Suit for $153 Million

Fannie Mae (FNMA) and KPMG LLP agreed to settle an eight-year-old investor class action for $153 million, according to Ohio Attorney General Mike DeWine, whose state’s employee pension fund was a plaintiff in the case.

Shareholders sued Washington-based Fannie Mae over a $6.3 billion overstatement of earnings, alleging that the company and accounting firm KPMG were involved in issuing false and misleading financial reports in violation of federal securities law.

The settlement announced today, which is subject to the approval of a federal judge in Washington, is less than the $10 billion then-Ohio Attorney General Marc Dann said Fannie Mae investors were entitled to in 2007.

“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,” DeWine said in memo filed in support of the proposed settlement.

Andrew Wilson, a Fannie Mae spokesman, didn’t immediately reply to a phone message seeking comment.

“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 case is Federal National Mortgage Association Securities, Derivative and “ERISA” Litigation, 04-cv-01639, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Andrew Zajac in Washington at

To contact the editor responsible for this story: Michael Hytha at

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