Earlier this year, Fannie Mae and its former auditor, KPMG LLP, reached a $153 million settlement in a securities fraud class action. As the agreement moves towards final court approval, lawyers for the class members are seeking more than $44 million in fees and expenses.
The plaintiffs’ lawyers are seeking 22 percent of the settlement fund—about $29.1 million, after certain expenses and costs are subtracted, the maximum the lawyers said they'd request in the settlement notice sent to class members. According to a motion for fees filed August 16 in U.S. District Court for the District of Columbia, the plaintiffs' lawyers are also seeking about $15.2 million for expenses.
The quest for attorney fees has been smooth so far. No class members have filed an objection to the settlement, which included notice that their lawyers would be seeking a maximum of 22 percent of the settlement in fees and up to $17 million in expenses. Class members have until September 30 to file objections. As part of the agreement, the defendants said they wouldn't take a position on fees.
W.B. Markovits of Markovits, Stock & DeMarco in Cincinnati, Ohio, served as lead counsel for the plaintiffs in recent years. He was not immediately available for comment. Until 2011, prominent lawyer Stanley Chesley led the plaintiffs' legal team, but he stepped down in the face of disciplinary proceedings in Kentucky. He was disbarred in Kentucky in March.
Besides Markovits' firm, Bernstein Liebhard and Cohen Milstein Sellers & Toll served as lead counsel for the plaintiffs.
Former Fannie Mae investors, led by the Ohio attorney general's office on behalf of state pension plans, sued Fannie Mae and its auditor, KPMG, in 2004. The class accused the mortgage giant of violating federal securities laws by manipulating earnings and violating guidelines known as generally accepted accounting principles.
In their motion for fees, the plaintiffs' lawyers said they deserved the fees after nine years of complex litigation. The settlement—which they described as the largest securities class action recovery in Washington—"did not come without a massive investment of resources, both time and treasure."
The plaintiffs' lawyers said they spent nearly 300,000 hours on the case, which they handled on a contingency fee basis, according to the motion. They said their lodestar—the calculation of fees—came out to about $94 million.
"A high risk of non-payment generally counsels in favor of increasing the fee award to attorneys who secure a recovery for their client," they argued. "Courts are aware that without such an incentive, plaintiffs’ lawyers might be less willing to take on cases that involve either unsettled legal issues or clients who might otherwise go unrepresented."
The risks facing plaintiffs' counsel escalated in the months leading up to the settlement. U.S. District Judge Richard Leon had dismissed several former Fannie executives as individual defendants in the case, finding the plaintiffs didn't produce enough evidence that they acted with intent to deceive, and he was weighing the defendants' joint motion to dismiss.
The settlement is still pending final approval by Leon, who preliminarily approved the deal in June. A fairness hearing on the settlement is scheduled for October 31.