Updated 11/15 at 9:54 a.m.
In early October, Fannie Mae's conservator, the Federal Housing Finance Agency, asked a Washington federal judge for a stay (PDF) in a securities class action against the mortgage giant. The agency argued that the litigation had already cost taxpayers $80 million in fees and that there was no hope of resolution until Fannie Mae's fate was more certain.
On Monday, U.S. District Judge Richard Leon issued an order denying the request. Leon didn't give a reason in writing.
The agency, which took over Fannie Mae as its conservator in July 2008, first entered the case as an intervening party in Nov. 2008. Fannie Mae and its auditor, KPMG, are facing allegations that the mortgage giant cost the Ohio state pension plan and other plaintiffs billions of dollars after overstating profits and failing to comply with other generally accepted accounting principles.
The plaintiffs, led originally by veteran plaintiffs’ attorney Stanley Chesley of Cincinnati’s Waite, Schneider, Bayless & Chesley, filed suit in 2005 in U.S. District Court for the District of Columbia. Chesley, who is facing unrelated disciplinary actions in Kentucky, is no longer on the case, although his firm is still lead counsel.
The Federal Housing Finance Agency filed a motion on Oct. 7 asking for a stay, stating that even if the plaintiffs were to prevail, they “almost certainly will never be able to collect even a single dollar of any final judgment.” In Fannie Mae’s three years under conservatorship, the organization has ended every quarter with a “negative net worth.”
Even if Fannie Mae were to make money, the agency stated, it would go first to paying back the U.S. government for the $104.8 billion in public dollars to date used to keep Fannie Mae afloat. The future of Fannie Mae is uncertain, the agency wrote, so there is no point to continuing litigation until it’s clear what will happen. If Fannie Mae stays under conservatorship or enters receivership, the agency wrote, plaintiffs still couldn’t collect on any judgment, as per an agency decision on Oct. 7.
The third option would be for Fannie Mae to come out of conservatorship in solid financial shape, but the agency wrote that it “is so exquisitely remote that it cannot begin to justify the continuing expenditure of litigation costs in this matter.” The plaintiffs opposed (PDF) the motion, and individual defendants aside from Fannie Mae asked (PDF) Leon to at least rule on pending motions for summary judgment first.
Lead counsel for the agency, Joseph Aronica of Duane Morris in Washington, and agency attorney Stephen Hart could not immediately be reached.
In a statement, a spokeswoman for Ohio Attorney General Mike DeWine said, "We believe that the Judge was correct, and we will continue to aggressively go forward with the class' claims.”
A previous version of this article misstated the type of lawsuit against Fannie Mae.