May 8 (Bloomberg) -- Fannie Mae and KPMG LLP agreed to pay $153 million to settle an eight-year-old investor class action, 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 its auditor, the accounting firm KPMG, were involved in issuing false and misleading financial reports in violation of federal securities law.
The settlement announced yesterday, 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.
``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 litigation originally involved 13 suits against Fannie Mae in Ohio and elsewhere that were consolidated and transferred to Washington. KPMG was added as a defendant in 2006.
At least three defendants were dropped from the suit over the years including former Fannie Mae Chairman Franklin Raines, former Fannie Mae Chief Financial Officer J.Timothy Howard and former Fannie Mae controller LeAnne Spencer.
The settlement resulted from mediation begun in 2011 under the auspices of Fred Fielding, former White House counsel to presidents George W. Bush and Ronald Reagan.
Attorney fees and other expenses will be paid out of the settlement.
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.
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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