Cohen Milstein serves as local counsel for the Lead Plaintiffs. On August 14, 2006, Lead Plaintiffs filed a Second Amended Consolidated Class Action Complaint naming Fannie Mae’s former auditor, KPMG, and the investment banking firm, Goldman Sachs, as additional defendants. 

The Complaint alleges that the defendants failed to disclose or misrepresented the following adverse facts that were known to defendants or were recklessly disregarded by them: 1) that defendants applied accounting methods and practices that do not comply with Generally Accepted Accounting Principles in accounting for the enterprise's derivatives transactions and hedging activities; 2) that defendants had materially understated its accrued cost of access liability; 3) that defendants used "cookie jar" accounting wherein it arbitrarily distributed current gains to subsequent quarters in a bid to keep its revenue and earning growth steady; 4) that defendants deferred expenses to achieve bonus compensation targets; and 5) that defendants had insufficient and inadequate internal controls. 

As a result, the value of the Company's net income and financial results was materially understated at all relevant times. Plaintiffs allege that KPMG participated in Fannie Mae’s scheme to defraud investors and issued unqualified audit opinions knowing that Fannie Mae’s publicly filed financials statements were materially false and misleading. Plaintiffs further allege that Goldman Sachs designed and fostered a scheme to defraud Fannie Mae’s investors through certain sham real estate mortgage investment transactions. 

The Court denied the motions to dismiss filed by defendants Fannie Mae and certain of its former executive officers in all respects. Goldman Sachs successfully moved for dismissal of the claims against it.  However, the court denied KPMG’s motion to dismiss, and denied its motion for reconsideration.

On January 7, 2008, the Court certified the case as a class action, defining the class as "all purchasers of the publicly traded common stock and call options of Fannie Mae, and sellers of Fannie Mae publicly traded put options during the period from April 17, 2001, through December 22, 2004."   

Discovery in this case is proceeding.