Four former top executives of Fannie Mae were sued on Monday, one day after the mortgage finance giant was seized by the U.S. government, in an investor lawsuit that claims the four lied about the company’s financial position and artificially inflated its share price.
The lawsuit, filed in U.S. District Court for the Southern District of New York, seeks class action status for investors who bought Fannie Mae securities between Nov. 16, 2007, and Sept. 5, 2008, according to the complaint, filed by the law firm of Coughlin Stoia Geller Rudman & Robbins.
Named as defendants are: Stephen Ashley, chairman; Daniel Mudd, president and chief executive officer; Stephen Swad, chief financial officer; and Robert Levin, chief business officer of Fannie Mae.
Messrs. Ashley, Mudd and Levin were replaced on Sunday under the government’s takeover plan. Mr. Swad had been replaced as CFO on Aug. 28.
The lawsuit, which seeks unspecified damages, says the four defendants were “motivated to misrepresent Fannie Mae’s financial condition by their generous compensation packages.”
According to the complaint, Mr. Mudd received more than $14 million in compensation from Fannie Mae in 2006 and more than $12 million in 2007; Mr. Levin received more than $9.5 million in 2006 and more than $8.4 million in 2007; Mr. Swad received more than $4.8 million in 2007; and Mr. Ashley received more than $500,000 in 2007.
The complaint details statements by the company in the fall of 2007 and spring of 2008 about its financial position and the capital raises Fannie Mae undertook.
The four are accused of: making false statements; failing to disclose adverse facts known to them about Fannie Mae; deceiving investors about Fannie Mae’s prospects and business; artificially inflating the prices of Fannie Mae’s publicly traded securities; and causing the plaintiff and other investors to purchase securities at inflated prices.
The U.S. government on Sunday seized control of Fannie Mae and Freddie Mac, launching what could be its biggest bailout ever in a bid to support the U.S. housing market and ward off more global financial market turbulence.
Investors hope the bailout, which carries an explicit government backing for debt issued by the two companies, will shore up confidence in the mortgage market and stem a wave of bank write-downs tied to mortgage investments gone sour.
The bailout could also wipe out the companies’ common and preferred shareholders. Fannie Mae and Freddie Mac common stocks were each trading at less than $1 a share, off more than 80 percent from Friday’s close.