For the second time in less than a month, a Washington federal judge has dismissed a former top Fannie Mae official from a sprawling securities fraud class action against the mortgage giant and its former officers.
U.S. District Judge Richard Leon granted summary judgment today to former Fannie Mae Executive Vice Chairman and Chief Financial Officer J. Timothy Howard, finding no evidence that Howard acted with any intent to deceive. The opinion comes on the heels of a September 20 order from Leon granting summary judgment for similar reasons to Franklin Raines, Fannie Mae’s former chairman and chief executive officer.
Former investors, led by the Ohio attorney general’s office on behalf of state pension plans, sued Fannie Mae and its auditor, KPMG, beginning in 2004, accusing company officers of violating federal securities laws by manipulating earnings and violating guidelines known as generally accepted accounting principles. The plaintiffs wanted to hold Fannie Mae liable for losses they suffered between 2001 and 2004.
Howard, who resigned from Fannie Mae in late 2004, was individually accused of knowingly misleading investors and making false statements about how Fannie Mae was doing its accounting and managing risk. But Leon, in today’s opinion, found that there was no concrete evidence of “intentional wrongdoing or extreme recklessness” by Howard.
Leon noted that there were no witnesses who specifically said Howard knew that Fannie Mae’s financial statements were wrong or had failed to meet accounting standards. On the flip side, he said, there was evidence that Howard acted in good faith, which weighed in favor of summary judgment.
A lead attorney for the plaintiffs, W.B. Markovits of Markovits, Stock & DeMarco in Cincinnati, referred a request for comment to the Ohio attorney general’s office, where a spokesman declined to comment. Markovits’ firm became lead plaintiffs firm in September, replacing longtime lead counsel at Cincinnati’s Waite, Schneider, Bayless & Chesley. Former lead counsel Stanley Chesley left the case more than a year ago in light of a pending disciplinary action in Kentucky in an unrelated case.
Howard has been represented by a team from Zuckerman Spaeder. Firm partner Steven Salky was not immediately available for comment.
Leon has yet to rule on several motions for summary judgment filed by both sides. In today’s opinion, he said that he would issue rulings in the following order: first on the motion filed by former Fannie Mae Vice President and Controller Leanne Spencer, followed by the defendants’ joint motions, KPMG’s motion and, finally, the plaintiffs’ motions.
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