Class-action specialist Milberg Weiss Bershad & Schulman LLP has filed suit against beleaguered mortgage financing concern Fannie Mae, charging the company with violations of the Securities and Exchange Act of 1934 and making false and misleading statements that ultimately led to a "scandal of tremendous proportion."

The suit, filed on behalf of investors who purchased Fannie Mae securities between Jan 13, 2000 and Sept. 22, 2004, names as defendants: Federal National Home Loan Mortgage Corp., chief financial officer J. Timothy Howard, chairman and chief executive Franklin D. Raines and chief operating officer Daniel H. Mudd. The suit said that Fannie Mae was presented as a company that was "a safe and steady earner."

The class action is pending in District Court.

Last week Fannie Mae's overseer -- the Office of Federal Housing Enterprise Oversight -- released a critical report, which stated that, among other things, Fannie Mae's accounting didn't comply with GAAP with regard to derivatives and hedging activities; that it employed "cookie jar" accounting reserves; and "maintained a corporate culture that emphasized stable earnings at the expense of accurate financial disclosures." As a result, OFHEO is said to be considering a shake-up of Fannie Mae's top management.

As of Dec. 31, 2003, Fannie Mae had $1 trillion in assets and $961 billion in debt. Both Fannie Mae and Freddie Mac are shareholder-owned, but charted by the United States Congress.

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