Former Fannie Mae Executives Lose Bid To Dismiss SEC Case Against Them

In September 2008, the United States government took over Fannie Mae and Freddie Mac as rising losses on loans guaranteed by both threatened to decimate capital reserves. Last year, the Securities and Exchange Commission (“SEC”) filed civil fraud cases against three former senior executives of Fannie Mae, including but not limited to, Fannie Mae’s former chief executive Daniel Mudd. The SEC alleged that the former executives mislead investors about the quality of the mortgage loans Fannie Mae guaranteed. Specifically, the SEC alleged that the former officers provided definitions and disclosures regarding what constituted a subprime mortgage that misled investors about their exposure to the loans. In response to the SEC’s allegations, the former executives filed a motion to dismiss and argued that the SEC complaint should be dismissed because they provided detailed disclosures about the loan characteristics to investors. On Friday, August 10, 2012, the Honorable Paul Crotty of the District Court for the Southern District of New York denied the motion to dismiss and held that the SEC had “plausibly argued,” that the former Fannie Mae executives, “consciously assisted the venture to misstate [Fannie’s] subprime and Alt-A exposure in an active way.” Lax & Neville LLP is experienced in representing investors who are the victims of sales practice abuses, including misrepresentations made about the credit rating and/or risks of various investments. If you are an investor who has suffered losses as a result of misrepresentations regarding your investments, feel free to contact Lax & Neville LLP for a free consultation.