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Lawsuit over Fannie Mae retirement plan losses can proceedUS-FANNIEMAE-EMPLOYEE-LAWSUIT:Lawsuit over Fannie Mae retirement plan losses can proceed
By Jonathan Stempel
NEW YORK (Reuters) - Fannie Mae employees may pursue much of their lawsuit to recover losses on company stock that remained in their retirement plan even as the mortgage financier hurtled toward near collapse, a Manhattan federal judge ruled.
U.S. District Judge Paul Crotty on Monday allowed claims by the current and former employees over their Employee Stock Ownership Plan to go forward against several directors including former Chief Executive Daniel Mudd, as well as members of Fannie Mae's benefits plan committee.
Federal regulators seized Fannie Mae and the smaller Freddie Mac on September 7, 2008 amid mounting mortgage losses, and put them into a conservatorship. The seizure came just over a week before Lehman Brothers Holdings Inc went bankrupt.
Crotty said the Fannie Mae employees made a plausible case that officials knew or should have realized that the mortgage financier faced "dire circumstances" that would make investing in its stock, and contributing stock rather than cash to the plan, imprudent.
"If Fannie Mae's alleged situation ... is not sufficiently dire to state a claim, it is not clear what would be sufficient," wrote Crotty, who also oversees a U.S. Securities and Exchange Commission civil fraud lawsuit against Mudd and two other former Fannie Mae executives.
Lawyers for the plaintiffs, the directors, and members of the benefit plans committee did not immediately respond to requests for comment.
The case was brought by David Gwyer and Mary Moore on behalf of current and former ESOP participants between April 17, 2007 and May 14, 2010.
Fannie Mae's share price fell to about $1 from nearly $57 over that period. According to court papers, the value of the ESOP fell to just $1.3 million at the end of 2008 from $116 million two years earlier.
Crotty also dismissed all claims against defendants who joined Fannie Mae's board after the conservatorship was created.
Shares of Fannie Mae closed down 0.4 cent at 26.8 cents on Monday.
The case is In re: Fannie Mae 2008 ERISA Litigation, U.S. District Court, Southern District of New York, No. 09-01350.
(Reporting by Jonathan Stempel in New York; Editing by Chris Gallagher)
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