Attorney General Jim Petro Steps Up To Fannie Mae


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Attorney General Jim Petro Steps Up To Fannie Mae

Attorney General Jim Petro Files Securities Fraud Class Action Suit Against Fannie Mae and Its Executive Officers

Jim Petro
Attorney General
State of Ohio

Ohio Attorney General Jim Petro filed a securities fraud class action lawsuit in federal court on behalf of the State of Ohio and all other shareholders in the Federal National Mortgage Association (Fannie Mae) (NYSE:FNM) , alleging that the mortgage buyer manipulated its earnings to artificially inflate the price of its common stock.

Petro filed suit against Fannie Mae, one of the largest financial institutions in the world, and its top executives in the United States District Court, Southern District of Ohio (Eastern Division), on behalf of the Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, Ohio Bureau of Workers' Compensation and all other purchasers of Fannie Mae common stock from Oct. 11, 2000, through Sept. 22, 2004.

"These defendants manipulated earnings in a fraudulent scheme to deceive investors about Fannie Mae's true financial state. This deception could cost shareholders billions of dollars," Petro said. "STRS, OPERS and BWC are to be congratulated for holding Fannie Mae accountable for these unscrupulous acts."

The complaint alleges that Fannie Mae and its top executives Franklin D. Raines, J. Timothy Howard and Leanne G. Spencer artificially inflated the company's publicly traded common stock through false public financial statements. "Because these executives were compensated primarily on Fannie Mae's stock performance, this artificially high stock price allowed the executives to get rich at the expense of the company's shareholders," Petro said.

In violation of The Securities Exchange Act and Securities and Exchange Commission rules, Fannie Mae and its officers did not disclose that the company:

• failed to apply generally accepted accounting procedures;
• lacked sufficient internal auditing controls;
• failed to report the volatility of the company's earnings.

The federal agency charged with overseeing Fannie Mae stated its findings were not simply differences in interpretation of accounting principles. Rather, the findings demonstrated "clear instances in which management sought to misapply and ignore accounting principles for the purposes of meeting investment analyst expectations; reducing volatility in reporting earnings; and enabling fragmented processes and systems and an ineffective controls environment to exist."

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