Fannie Mae Chairman Stephen Ashley, ex-Chief Executive Officer Daniel Mudd and two other former executives were accused in a shareholder lawsuit of misleading investors about the mortgage company's finances.
The suit, which was filed yesterday in Manhattan federal court by investor John Genovese, seeks class-action, or group, status and unspecified damages. It alleges securities fraud violations.
The U.S. government seized control of Fannie Mae and Freddie Mac Sept. 7, after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies making up almost half the U.S. home-loan market. Fannie tumbled 90 percent to its lowest since 1982 in New York Stock Exchange composite trading yesterday.
Genovese claims in the lawsuit the executives misled investors from November 2007 to Sept. 5 about whether Fannie had adequate capital. The lawsuit doesn't name the Washington-based company.
"Defendants failed to properly account for the company's impaired investments, as doing so would have negatively affected Fannie Mae's net worth," according to the complaint.
The other defendants are former Chief Financial Officer Stephen Swad and ex-Chief Business Officer Robert J. Levin. Mudd was replaced as part of Paulson's plan and will remain as a consultant in the transition period.
The government takeovers bring Fannie, formed after the Great Depression and spun off in 1968, and Freddie, created in 1970, back under the government's fold. It's the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns.
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