10k pg. 213-4: "Litigation Concerning the Purchase Agreement in the U.S. District Court
for the District of Columbia
In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations. This is a
consolidated class action lawsuit filed by private individual and institutional investors (collectively, "Class Plaintiffs") against
FHFA, Fannie Mae, and Freddie Mac.
Fairholme Funds, Inc., et al. v. FHFA, et al. This is an individual plaintiffs’ lawsuit by certain institutional investors (“Individual
Plaintiffs”) against FHFA, Fannie Mae, and Freddie Mac.
Plaintiffs in each of the District of Columbia lawsuits filed an amended complaint on November 1, 2017 alleging claims for
breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duties, and violation of
Delaware and Virginia corporate law. Additionally, the Class Plaintiffs brought derivative claims against FHFA for breach of
fiduciary duties and the Individual Plaintiffs brought claims under the Administrative Procedure Act. Both sets of claims are
generally based on allegations 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, including the rights to
receive dividends and a liquidation preference. On September 28, 2018, the District Court dismissed all of the claims except
those for breach of the implied covenant of good faith and fair dealing. The cases were consolidated for trial.
Court rulings have limited the Plaintiffs’ damages theories to those based on the decline in Freddie Mac’s and Fannie Mae’s
share value immediately after the Third Amendment. The Plaintiffs have asserted losses based on the decline in value of
Freddie Mac’s common and junior preferred stock from August 16 to August 17, 2012. During the trial in October and early
November 2022, the Plaintiffs requested that the jury award $832 million plus pre-judgment interest as damages against
Freddie Mac. The jury in that trial was not able to reach a unanimous verdict and on November 7, 2022 the judge declared a
mistrial. The retrial started on July 24, 2023. On August 14, 2023, the jury returned a verdict against FHFA, Fannie Mae, and
Freddie Mac awarding compensatory damages of $282 million to Freddie Mac junior preferred shareholders and $31 million to
Freddie Mac common shareholders. The jury declined to award the Freddie Mac shareholders prejudgment interest. In 3Q
2023, we recorded a $313 million accrual in other expense on our condensed consolidated statements of income for the
adverse judgment. The entry of final judgment remains before the court."
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