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Judge Nixes Claims in Fannie Mae Suit

August 1, 2007

Associated Press

WASHINGTON -- A group of shareholders who opted out of a class-action lawsuit against Fannie Mae saw many of their own claims against the mortgage giant dismissed Tuesday.

The group, led by Evergreen Equity Trust and Franklin Managed Trust, sued in connection with a massive accounting scandal. The investors accused the company and its executives of violating numerous state and federal securities laws.

U.S. District Judge Richard J. Leon dismissed all but a few of the claims. He dismissed some charges because they were filed after the statute of limitations had expired. Leon also said federal law does not let the investors sue for violation of state laws. The investors contended that was unfair.

"That is an argument better made to Congress!" Leon wrote.

Leon also dismissed allegations of wrongdoing against insurance company Radian Guaranty Inc. and members of the Fannie Mae Auditors Committee. He let stand some securities charges against the company and its former executives, as well as insider trading allegations against Timothy Howard, Fannie Mae's former chief financial officer.

Fannie Mae, the second-largest U.S. financial institution after Citigroup Inc., buys mortgage loans from lenders, packages the loans and sells them as mortgage-backed bonds. Regulators accused the company in 2004 of serious accounting problems, fined it $400 million and ordered it to restate earnings back to 2001.

The company ousted its executives and, when it corrected its past earnings statements, it wiped out $6.3 billion in profit. It has spent more than $1 billion correcting its accounting practices.

Evergreen Equity Trust and Franklin Managed Trust opted out of a class-action shareholder lawsuit last year. Tuesday's ruling does not affect that case, which is still pending. Because many of their unique claims were dismissed, the shareholders could now get folded into the class-action lawsuit.

Coopyright 2007 Associated Press

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