MI Pension Fund Slaps Fannie Mae with Lawsuit

January 20, 2005 (PLANSPONSOR.com) - The Wayne County (Michigan) retirement plan has filed a lawsuit against Fannie Mae in an effort to block a move to give the company's former executives millions of dollars in severance payments.

The fund, a Fannie Mae shareholder, asked the court for a temporary restraining order stopping   severance payments to former Chairman and Chief Executive Franklin Raines and f ormer Chief Financial Officer J. Timothy Howard (See  Fannie Mae’s Ousted Chief to Collect Big Payout ), according to a Financial Times report.

The fund alleges in the lawsuit that Fannie’s board made an “unconscionable decision” to accept the executives’ resignations rather than firing them and that the company’s financial position is suffering as a result of the executives’ generous severance payments. It argued that payment of the benefits will exacerbate Fannie’s financial difficulties as it looks for ways to raise additional cash to meet new capital requirements.

The suit adds to class action lawsuits pending against the company alleging it manipulated earnings and deceived investors after its regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), found it had misapplied accounting rules.

Separately on Wednesday, Representative Richard Baker (R-Louisiana), chairman of the House subcommittee on capital markets,  released a letter from OFHEO dated January 14 concerning the payment of bonuses and compensation to Fannie’s executives.The regulator told Baker it would take “appropriate enforcement actions” if the Securities and Exchange Commission (SEC) found that Fannie’s executives should forfeit compensation.

It remains unclear whether Raines and Howard are personally culpable for the accounting mistakes. Investigations into the company’s accounting practices by the SEC and OFHEO are continuing.