The Coming Legal Challenge For Fannie Mae

This is a Dow Jones report from February 10,2006:

WASHINGTON (Feb. 10) - A federal judge Friday refused to dismiss a class action lawsuit against three former top executives at Fannie Mae, ruling that there was enough evidence to suggest that ex-Chief Executive Franklin Raines, ex-Chief Financial Officer Timothy Howard and ex-comptroller Leanne Spencer may have committed securities fraud.

The decision, which is a huge blow to Fannie and its former executives, allows the case to proceed to the next phase. The company, which hasn't reported its financial results since mid-2004, remains under investigation by several law enforcement agencies and regulators for improper accounting.

Ohio Attorney General Jim Petro, who is the lead plaintiff in the case, said the decision by Judge Richard Leon of the U.S. District Court in Washington was a "great victory" for Ohio's pension and retirement funds as well as for other shareholders of Fannie's stock.

"Now we will move through the discovery phase quickly to uncover the root of the fraud and bring Fannie Mae and its former officers to justice," Petro said in a statement.

For those of you long Fannie Mae stock or thinking of getting long:what if Fannie's luck runs out in court? How big could the judgement be? We have no idea.We've got to admit the irony here, the lead plaintiff is a government entity suing a quasi-government entity.