Washington, DC: (May-31-07) A shareholders derivative lawsuit filed against Fannie Mae, the second-largest US financial institution aside from Citigroup Inc., alleged that the company had fraudulent business practices that led investors to lose money in a $6 billion accounting scandal. The lawsuit sought to hold Fannie Mae board members and former executives personally responsible for manipulating earnings figures to trigger huge bonuses. Investors hoped that the action would force former CEO Franklin Raines, former CFO J. Timothy Howard and others to repay their bonuses and severance packages to Fannie Mae. Shareholders wanted the company to rotate auditing firms, limit stock selling by executives, and change the compensation structure, tightening internal controls at the mortgage lender.
The lawsuit was dismissed by US District Judge Richard Leon, who stated the reason for the dismissal to be that the shareholders did not first petition Fannie Mae to, as a company, sue its board members and executives. Leon turned down arguments that claimed that the effort would have been futile, as the executives tightly held the reins of the company. Regulators accused the company in 2004 of serious accounting problems, fined it $400 million and ordered it to restate earnings back to 2001. [ FOX NEWS: FANNIE MAE DISMISSED ]
