From Note 13 in 10Q:
Senior Preferred Stock Purchase Agreements Litigation
A consolidated class action (“In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action
Litigations”) and a non-class action lawsuit, Fairholme Funds v. FHFA, filed by Fannie Mae and Freddie Mac
shareholders against us, FHFA as our conservator, and Freddie Mac are pending in the U.S. District Court for the
Notes to Condensed Consolidated Financial Statements | Fair Value
Fannie Mae (In conservatorship) Third Quarter 2023 Form 10-Q 114
District of Columbia. The lawsuits challenge the August 2012 amendment to each company’s senior preferred stock
purchase agreement with Treasury.
Plaintiffs in these lawsuits allege that the net worth sweep dividend provisions of the senior preferred stock that were
implemented pursuant to the August 2012 amendments nullified certain of the shareholders’ rights and caused them
harm. Plaintiffs in the class action represent a class of Fannie Mae preferred shareholders and classes of Freddie Mac
common and preferred shareholders. On September 23, 2022, the court issued a summary judgment ruling that
permitted the plaintiffs in these lawsuits to present to a jury their claims for breach of the implied covenant of good faith
and fair dealing. The cases were consolidated for trial and a trial commenced on October 17, 2022, but resulted in a
mistrial after the jury could not reach a verdict. A second trial commenced on July 24, 2023. On August 14, 2023, the
jury returned a verdict for the plaintiffs and awarded damages of $299.4 million to Fannie Mae preferred shareholders.
On October 24, 2023, the court awarded these shareholders prejudgment interest on the damage award, to be
determined as simple interest, accruing from August 17, 2012 until the date on which judgment is entered at a fixed rate
of 5% over the Federal Reserve discount rate as of August 17, 2012. We have determined the prejudgment interest
through September 30, 2023 is $192 million. The parties will have an opportunity to file an appeal. We evaluated the
jury verdict and the court’s award of prejudgment interest and have established an accrual for each, reflected as
expense in “Other expenses, net” for the three months ended September 30, 2023.
