IN RE FANNIE MAE 2008 SECURITIES LITIGATION

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#p112925 F.3d at 1129 (2d Cir. 1994).

Plaintiffs further argue that, based on a corporate tax rate of 35%, Fannie would have needed to earn $37 billion in near term earnings in order to utilize the full amount of DTAs, and that there were no such prospects. (¶ 469.) Plaintiffs point to the fact that during the four years of the housing boom from 2003 though 2006 Fannie had only reported net income totaling $23 billion, (id.), but it is taxable net income which is the relevant metric. (Hall Decl. Ex. 2, SFAS 109 ¶ 21 (explaining that realization of DTAs depends on the existence of future taxable income, not net income).) Further, while a declining market existed at the time Plaintiffs allege Fannie should have taken the write-down, and was likely to continue to exist into the near future, this fact must be balanced against the likelihood of future profits management expected to be realized. Given that the normal I.R.S. limit on carry-forwards is 20 years, see 26 U.S.C. § 172(b)(1)(A)(ii), Plaintiffs fail to allege sufficient facts to warrant an inference that Fannie committed fraud in believing that it could earn sufficient income over that period — not the 3-5 year period suggested by Plaintiffs — to realize the DTAs before they expired.

ii. Fannie's Alleged Failure to Report Adequate OTTI

Plaintiffs allege that the circumstances requiring classification by Fannie of fair value losses from available-for-sale securities as other-than-temporary impairments existed beginning in the third quarter of 2007, and that Defendants therefore committed fraud in not writing these losses down earlier. Specifically, Plaintiffs assert that because certain assets were written down after Fannie entered conservatorship, Fannie's management could not have had the required intent and ability to hold the assets to recovery.

"Available-for-sale" securities are those held neither principally for the purpose of trading in the near term nor with the intention of holding them to maturity. (¶ 151; accord Hall Decl. Ex. 5, SFAS 115 ¶ 12b.) Unlike fair value losses of other securities, fair value losses of available-for-sale securities are considered "unrealized" losses, and, therefore, are not recorded on the income statement and do not affect Core Capital unless such losses have become classified as "other-than-temporary." (¶ 152; Hall Decl. Ex. 4; Ex. 5, SFAS 115 ¶¶ 13, 16.)

During the year before conservatorship, Fannie classified $1.4 billion of a total of $17 billion in unrealized losses to its available-for-sale securities as "other than temporary." (See ¶ 155.) Notably, Fannie reported $6.4 billion in other-than-temporary impairments in the last two quarters of 2008, an amount more than four times as large for a period half as long. (Id.)

SFAS No. 115 governs accounting for OTTI and states that guidance regarding when a loss has become "other-than-temporary" is provided in SEC Staff Accounting Bulletin No. 59 ("SAB 59"). (See Hall Decl. Ex. 5, SFAS 115 ¶ 16 n. 4.) SAB 59 states that the factors to be considered are: (a) "length of the time and the extent to which the market value has been less than cost"; (b) "near-term prospects of the issuer"; and (c) "intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value." 17 C.F.R. § 211(5)(M); see also In re MoneyGram Int'l, Inc. Sec. Litig., 626 F. Supp. 2d 947, 957 (D. Minn. 2009) (explaining that an impairment is not considered "other-than-temporary" if there is an intent and ability to hold the asset until the time of a reasonably expected recovery in value).

Plaintiffs allege that all three factors existed starting no later than the third quarter of 2007 and point out that two-thirds of the unrealized losses from available-for-sale securities had been in a loss position for twelve consecutive months or longer, (see Hall Decl. Ex. 3, 2007 Form 10-K, at 91-92), and thus, "there was no prospect for an imminent recovery in value." (¶ 456.) GAAP, however, does not require that management write down assets as OTTI, if management considers it probable that all amounts due will be collected and that the security will recover its value during the period management intends to hold it. (See Hall Decl. Ex. 5, SFAS 115 ¶ 16.) Therefore, Plaintiffs' suggested nine month period, (Pl. Mem. 37), is arbitrary — management may have intended to hold the securities through the market downturn until a point at which the market recovered.

In addition, by the third quarter of 2007, Fannie was forecasting that the housing market downturn that had begun in 2006, (¶ 59), would continue through 2008 with increasing delinquencies and foreclosures. (¶¶ 455, 468.) Following this argument, Plaintiffs allege that Defendants could not have intended to hold the available-for-sale securities until an anticipated recovery because no such recovery was anticipated. Plaintiffs support this point mainly with the 2007 Home Price Forecast report and the assumption that the conservator's write-down negates any argument that the prior failure to report additional OTTI was based on Defendants' anticipation of a recovery. This argument relies on hindsight, however, and such allegations are insufficient to survive a motion to dismiss. See Panther Partners, Inc. v. Ikanos Commc'ns, Inc., 538 F. Supp. 2d 662, 672 (S.D.N.Y. 2008); Caiafa v. Sea Containers Ltd., 525 F. Supp. 2d 398, 410, 412 (S.D.N.Y. 2007), aff'd, 331 F. App'x 14 (2d Cir. 2009) (dismissing claim because defendants' $500 million write-down did not establish that previous financial statements were fraudulent).

iii. Fannie's Alleged Failure to Report Adequate Loan Loss Reserves

When Fannie filed its 2006 10-K on August 16, 2007, the probability of Fannie's credit losses had substantially increased due to its heightened exposure to high risk mortgages and the sharp downturn of the housing market. (¶ 146.) As a result, in mid-2007, Fannie significantly reduced its investments in, and guarantees of, new Alt-A loans. (¶ 131.) The Complaint alleges that, under GAAP, the increased probability of Fannie's credit losses required Fannie to make corresponding increases in its loss reserves. (¶¶ 136, 146.) Fannie, however, did not begin to increase its loan loss reserves until the fourth quarter of 2007, when Fannie reported reserves 40% higher than the largest amount Fannie recorded in any previous quarter. (¶¶ 147, 444.) Similarly, in the fourth quarter of 2008, Fannie increased its combined loss reserves from $15.6 billion to $24.8 billion. (¶ 148.)

Under SFAS No. 5, entitled "Accounting for Contingencies," some losses must be estimated and reported as negative amounts on Fannie's income statement and balance sheet, even before the borrower has failed to make full payment to Fannie or the guaranteed party has demanded payment from Fannie. (See ¶¶ 434-35.) This circumstance occurs when two conditions are met: (1) it has become "probable that one or more future events will occur confirming the fact of the loss," and (2) "[t]he amount of the loss can be reasonably estimated." (¶ 435 (quoting SFAS 5 ¶ 8); see also ¶ 436 ("Probable means the future event or events are likely to occur; however, the conditions for accrual are not intended to be so rigid that they require virtual certainty before a loss is accrued.") (quoting American Institute of Certified Public Accountants Audit and Accounting Guide, Depository and Lending Institutions, ¶ 9.34).)

Plaintiffs again argue that because it happened later, it was fraudulent not to disclose it earlier. Here, Fannie should have, based upon "expectations about the future," increased its loan loss reserves in early 2007, which would have, in turn, reduced Fannie's Core Capital. (¶¶ 95, 442, 445; Pl. Mem. 43.) Plaintiffs thus claim that Fannie manipulated the accounting results so as to give the appearance that Fannie met the minimum Core Capital requirements mandated by federal regulators without actually meeting those standards.

Plaintiffs again mainly support this argument with the internal 2007 Home Price Forecasting Report indicating a 50% market decline over three to five years. This report, as alleged, would seem to indicate the existence of probable future events confirming the fact of loss. GAAP makes clear, however, that reserves are required only for current impairments or

liabilities as of the date of the financial statements at issue which meet the above-mentioned conditions. The losses forecasted in the report were not current impairments as of the date of issuance of Fannie's financials for those years. Further, Fannie did increase its provisions for credit losses throughout the Class Period. Though the losses may have been predictable to a degree, based on internal forecasts, Fannie did have loss reserves in excess of their reasonable loss estimate at the time and, in fact, continued to increase those reserves gradually through 2007. (See ¶ 148.) In the fourth quarter of 2008, Fannie made a massive increase to its combined loss reserves, (¶ 148), but that is not, in itself, an indicator that the previous reserve levels were inadequate.

c. Outside Auditor Liability: Allegations Against Deloitte Touche

Pleading scienter for an auditor is demanding. In re Refco, Inc. Sec. Litig., 503 F. Supp. 2d 611, 657 (S.D.N.Y. 2007) (quoting In re Marsh McLennan Co., Inc. Sec. Litig., 501 F. Supp. 2d 452, 488 (S.D.N.Y. 2006)). "For an accountant to be found to have acted recklessly during an audit, its alleged misconduct must `approximate an actual intent to aid in the fraud being perpetrated by the audited company.'" Id.

This standard requires more than "a failure to follow GAAP." Plaintiffs must prove that "[t]he accounting practices were so deficient that the audit amounted to no audit at all, or an egregious refusal to see the obvious, or to investigate the doubtful, or that the accounting judgments which were made were such that no reasonable accountant would have made the same decisions if confronted with the same facts."

Id.

i. Allegations of Misstatements and Omissions in Financial Statements

Plaintiffs allege that, in conjunction with the supposed misstatements and GAAP violations in Fannie's 2006 and 2007 10-Ks, as detailed above, Deloitte's report in each of these 10-Ks stated misleadingly that Fannie's financial statements "present[ed] fairly, in all material respects, the financial position of Fannie . . . in conformity with [GAAP]." (¶¶ 36, 233, 475-76, 496.) In other words, Plaintiffs claim that Deloitte had advance knowledge of the impending housing collapse and, in violation of the accounting and auditing standards, intentionally did not reflect that forecast in Fannie's financial statements.

Since Plaintiff has failed to adequately plead any GAAP violations in Fannie's financial statements for the Class Period, however, Plaintiffs similarly fail to allege any misstatements or omissions by Deloitte in its audit opinions or violations of GAAS. Further, even if a misstatement or omission had been identified in the financial statements, Plaintiffs fail to meet the more exacting pleading standard of scienter for an outside auditor. The Court finds no factual allegations giving rise to a "strong inference" of fraudulent intent.

ii. "Going Concern" Qualification

Plaintiffs also allege that Deloitte should have included a "going concern" qualification in its audit report on Fannie's year-end 2007 financial statements. (¶¶ 488, 520.) Plaintiffs allege no facts, however, supporting this contention other than a "deteriorating housing and credit market" and Fannie's placement into government conservatorship nine months later. (¶ 520 (citing 2008 3rd Quarter Form 10-Q at 147-48; see Ex. G).) Plaintiff fails to plead facts supporting a conclusion that Deloitte fraudulently violated GAAS by issuing a "clean" opinion on Fannie's 2007 year-end financial statements.

Going-concern qualifications are governed by Professional Auditing Standard 341 ("AU § 341"), which provides that an "auditor has a responsibility to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, not to exceed one year beyond the date of the financial statements being audited." (AU § 341.02.) Inclusion of a going-concern qualification requires the auditor to use their judgment: "[t]he auditor's evaluation is based on his or her knowledge of relevant conditions and events that exist at or have occurred prior to the date of the auditor's report." (Id.) In addition, AU § 341 does not provide bright-line rules or preclude an auditor from declining to express an opinion in uncertain cases. See AU § 341.12 n. 4 (explaining that "[n]othing in this section . . . is intended to preclude an auditor from declining to express an opinion in cases involving uncertainties"); Oleck v. Fischer, No. 73 Civ. 1460-CSH, 1979 WL 1217, at *24 (S.D.N.Y. June 8, 1979) (concluding that an auditor's decisions, including issuance of a clean opinion with respect to a company that subsequently went bankrupt, were "judgmental, and in no manner tainted by conduct which could be characterized as reckless"), aff'd, 623 F.2d 791 (2d Cir. 1980).

Courts evaluate going-concern assessments by contrasting "indicia of impending failure" with the company's ability to "obtain the refinancing it need[s] to survive." In re Polaroid Corp. Sec. Litig., 465 F. Supp. 2d 232, 244, 247 (S.D.N.Y. 2006). Fannie's potential ability to overcome liquidity problems by refinancing debt is, therefore, key. See id. at 247; see also AUSA Life Ins. Co. v. Ernst Young, 206 F.3d 202, 206 (2d Cir. 2000) (equating prospects for continuing as going concern with company's ability to "survive"); Schick v. Ernst Young, 808 F. Supp. 1097, 1102 (S.D.N.Y. 1992) (going-concern assessment looks to company's liquidity).

The Complaint offers no facts suggesting that, as of year-end 2007, Deloitte knew that Fannie would be unable to obtain financing in 2008. Nor does the complaint sufficiently establish that Deloitte knew or should have known that the housing market would collapse and take Fannie with it. Even Fannie's conservatorship in September 2008 does not show that the company ceased to be a going concern. "At least as early as the 1930s, it was recognized that the purpose of a conservator was to maintain the institution as an ongoing concern." Resolution Trust Corp. v. CedarMinn Bldg. Ltd. P'ship., 956 F.2d 1446, 1454 (8th Cir. 1992). In fact, despite the conservatorship, Fannie remains a going concern and has so stated in each of its filings since entering the conservatorship.

See Ex. G, 2008 Form 10-Q at 148 ("We are operating as a going concern and in accordance with our delegation of authority."); Ex. C, 2008 Form 10-K at F-11 ("Based on consideration of all the relevant conditions and events affecting our operations, including our dependence on the U.S. Government, we continue to operate as a going concern and in accordance with our delegation of authority."); Ex. H, 2009 1st Quarter Form 10-Q at 117 (same); Ex. I, 2009 2nd Quarter Form 10-Q at 124 (same).

IV. Loss Causation

As the Court has already addressed — and dismissed — Plaintiffs' claims regarding Fannie's risk exposure and alleged accounting irregularities, the Court need only consider loss causation as to Plaintiffs' claims of misstatements regarding Fannie's internal risk management and controls. Specifically, Plaintiffs must sufficiently allege that "it is plausible" that their loss "was the result — at least in part" of the fact that Defendants concealed that their internal risk management and controls were woefully inadequate during the Class Period. See In re Bristol Myers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148, 166 (S.D.N.Y. 2008). In Bristol Myers, this Court found it plausible that a defendant's misconduct, which resulted in a rejection of a settlement by government regulators and a subsequent stock price drop, caused a plaintiff's losses. Id. at 165-66. The instant Complaint is similar — Plaintiffs allege that Defendants' misstatements regarding internal risk management and controls, which, in turn, resulted in government conservatorship, caused a stock price drop, which consequently caused their losses. Although it may be likely that a significant portion, if not all, of Plaintiffs' losses were actually the result of the housing market downturn and not these alleged misstatements, at this stage of pleading, "[t]he Court need not make a final determination as to what losses occurred and what

actually caused them," and need only find that Plaintiffs' allegations are plausible. Id. at 166. As a result, the Court finds that Plaintiffs have sufficiently alleged that Defendants' purported concealment of the inadequacy of Fannie's internal risk management and controls caused Plaintiffs' loss, "at least in part."

V. Individual Defendant Liability a. Individual Defendants' Liability Under 10(b) and 10b-5

Since, as discussed above, there have been no actionable misstatements pleaded by Plaintiffs with regard to Fannie's entry into the market, their underwriting standards, and the geographic concentrations of their purchased mortgages, it follows that there were no actionable misstatements made by the Individual Defendants regarding these items. Plaintiffs further allege that the Individual Defendants reassured investors that Fannie's Core Capital levels and financial statements met GAAP requirements and otherwise were adequate. (¶¶ 241, 297, 308, 340, 407.) Since Plaintiffs fail to sufficiently plead violations of GAAP by Fannie as an entity, they cannot sufficiently plead that the Individual Defendants are liable for any violations that have not been sufficiently pleaded in the first place.

The Court has denied Fannie's motion to dismiss concerning Plaintiffs' allegations that Fannie misrepresented the soundness of their internal risk management capabilities. The Court now turns to whether the Individual Defendants may be personally liable for these potential misstatements.

i. Mudd and Dallavecchia

Defendants Mudd and Dallavecchia, as the recipient and sender, respectively, of the October 2006 and July 2007 emails, had personal knowledge of Fannie's allegedly inadequate internal risk controls. In spite of this knowledge, insofar as Dallavecchia made statements such as: "[o]ur purchases have been prudent and have been made when we concluded that they would contribute to our mission objectives," and "we participate in the subprime market in accordance with parameters that were agreed between my team and the business leaders" (¶ 184); and insofar as Mudd made statements such as, "we believe Fannie Mae is well positioned to weather the turmoil in the mortgage market. . . . I believe Fannie Mae is well situated for the future" (¶ 212); it follows that these Defendants may be personally liable under Section 10(b) and Rule 10b-5 for making material misstatements.

ii. Swad and Blakely

Plaintiffs do not allege, however, that Defendants Swad or Blakely had knowledge of these emails. (See ¶ 578.) Plaintiffs' individualized scienter allegations regarding these Defendants revert, instead, to claims that Swad and Blakely knew of Fannie's relaxed underwriting standards and that they concealed the extent of Fannie's participation in the subprime market. As Plaintiffs' only sufficient allegations of scienter pertain to the emails exchanged between Dallavecchia and Mudd, and because it is not alleged that Swad and Blakely had knowledge of these emails, it follows that Plaintiffs have not alleged that Swad or Blakely possessed sufficient scienter. As such, the individual allegations against these Defendants must be dismissed.

b. Section 20(a): Control Person Liability

Section 20(a) of the Exchange Act provides that "[e]very person who, directly or indirectly, controls any person liable under any provision of this chapter . . . shall also be liable jointly and severally with and to the same extent as such controlled person" unless the purported control person can demonstrate that he "acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action." 15 U.S.C. § 78t(a).

"[T]o plead a prima facie case of control person liability under section 20(a), a plaintiff must allege `(1) a primary violation by the controlled [entity], (2) control of the primary violator by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable participant in the controlled person's fraud.'" In re Scottish Re Group Sec. Litig., 524 F. Supp. 2d 370, 386 (S.D.N.Y. 2007). It is not sufficient for a plaintiff to allege that an individual defendant has control person status; instead, the plaintiff must assert that the defendant exercised actual control over the matters at issue. Id.

Control person liability need not be pleaded with particularity and is generally analyzed under the "short and plain" statement analysis of Rule 8(a). See Sedona Corp. v. Ladenburg Thalmann Co., Inc., No. 03 Civ. 3120 (LTS) (THK), 2005 WL 1902780, at *16 (S.D.N.Y. Aug. 9, 2005) (holding that a plaintiff's pleading with respect to the elements of control person liability need only meet the requirements of 8(a) since "[n]either the PSLRA (because scienter is not an essential element), nor Rule 9(b) (because fraud is not an essential element), apply to a Section 20(a) claim"). Some courts, however, analyze the culpable participation prong under the heightened pleading standard of the PSLRA. In re Global Crossing, Ltd. Sec. Litig., No. 02 Civ. 910 (GEL), 2005 WL 1907005, at *5 (S.D.N.Y. Aug. 8, 2005) ("[S]ince culpable participation is an element [of 20(a) claims], the PSLRA's heightened pleading requirements apply. . . .").

i. 20(a) Liability Regarding Risk Exposure and GAAP

Because the "controlled person" in this instance is Fannie, and because Fannie has not committed a primary violation of the Exchange Act concerning risk exposure or GAAP, Section 20(a) is irrelevant with regard to this branch of Plaintiffs' allegations. Regardless of whether or not Individual Defendants are in control of the violator, they cannot be culpable participants in a nonexistent fraud.

ii. 20(a) Liability Regarding Internal Risk Management and Controls

As discussed previously, Fannie may have violated 10b-5 via misstatements by Mudd and Dallavecchia regarding Fannie's internal risk controls. As a result, Plaintiffs satisfy the "primary violation" requirement. Further, "[a]lthough status as officer or committee member is generally not enough to constitute control, and thus a mere recitation of [the Individual Defendant]'s title[s] . . . is not sufficient," In re Alstom SA Sec. Litig., 406 F. Supp. 2d 433, 494 (S.D.N.Y. 2005), Plaintiffs allege enough facts to suggest that the Individual Defendants did indeed have control over Fannie: Mudd, as CEO, was not only Fannie's most senior officer, but he signed the 10-Ks and 10-Qs that contained many of Fannie's purported misstatements, as did Swad, Fannie's CFO (¶ 28); Dallavecchia, as Executive Vice President and Chief Risk Officer, was responsible for Fannie's risk controls and for reviewing and approving the methodology and amount of Fannie's combined loss reserves, and also contributed to Fannie's misstatements (¶ 31); and Blakely does not challenge his Control Person status. See In re Parmalat Sec. Litig., 594 F. Supp. 2d 444, 455-56 (S.D.N.Y. 2009) ("`[O]nly the ability to direct the actions of the controlled person, and not the active exercise thereof' is required to establish control.") (citation omitted); see also Hall v. Children's Place Retail Stores, Inc., 580 F. Supp. 2d 212, 235 (S.D.N.Y. 2008) ("Whether a person is a `controlling person' is a fact-intensive inquiry, and generally should not be resolved on a motion to dismiss.'") (citing In re Oxford Health Plans, Inc., 187 F.R.D. 133, 143 (S.D.N.Y. 1999)).

Swad has not challenged his status as a control person.

While a party cannot be held liable for both a primary violation and as a control person, alternative theories of liability are permissible at the pleading stage. See In re Parmalat Sec. Litig., 375 F. Supp. 2d 278, 310 (S.D.N.Y. 2005). "Culpable participation" is, as discussed above, sufficiently pled for Mudd and Dallavecchia so far as Plaintiffs allegations regarding internal risk management are concerned. Insofar as scienter pleadings under Section 10(b) and Rule 10b-5 are more difficult to allege than 20(a) claims (due to PSLRA and Rule 9(b)), it follows that Plaintiffs have satisfied 20(a)'s "culpable participation" prong for these Defendants. See In re Take-Two, 551 F. Supp. 2d at 308 ("[B]ecause the Court has determined that [Plaintiff] adequately pleads [Defendant's] scienter . . . Count II sufficiently alleges [Defendant's] culpable participation in that fraud as well.") (citing In re AOL Time Warner, Inc. Sec. and "ERISA" Litig., 381 F. Supp. 2d, 219, 235 (indicating that adequate scienter allegations necessarily satisfy culpable participation element)).

However, Plaintiffs plead no facts supporting their allegation that Swad and Blakely were culpable participants in violation of 10(b) and 10b-5. In Police and Fire Ret. Sys. of City of Detroit v. SafeNet, Inc., 645 F. Supp. 2d 210, 227 (S.D.N.Y. 2009), this court clearly held that culpable participation, in some meaningful sense, is a requirement of 20(a) liability. See also ATSI Commc'ns, 493 F.3d at 108 (citing SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1472 (2d Cir. 1996)). As a result, Plaintiffs claims against Swad and Blakely under 20(a) must be dismissed.

CONCLUSION

For the foregoing reasons, Defendants' motion is GRANTED IN PART and DENIED IN PART. Specifically:

(1) With respect to Plaintiffs' claim against Fannie and the Individual Defendants for violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, the Court:

(a) GRANTS Defendants' motion to dismiss as to Plaintiffs' allegations regarding Fannie's subprime and Alt-A mortgage exposure and financial reporting as to all Defendants;

(b) DENIES Defendants' motion to dismiss as to Plaintiffs' allegations regarding Fannie's internal controls and risk management as to Fannie, Mudd, and Dallavecchia;

(c) GRANTS Defendants' motion to dismiss as to Plaintiffs' allegations regarding Fannie's internal controls and risk management as to Swad and Blakely; and

(2) With respect to Plaintiffs' claim against Deloitte for violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, the Court GRANTS Defendants' motion to dismiss; and

(3) With respect to Plaintiffs' claim against the Individual Defendants for control person liability under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), the Court:

(a) GRANTS Defendants' motion to dismiss as to Plaintiffs' allegations regarding Fannie's subprime and Alt-A mortgage exposure and financial reporting as to all the Individual Defendants;

(b) DENIES Defendants' motion to dismiss as to Plaintiffs' allegations regarding Fannie's internal controls and risk management as to Mudd and Dallavecchia;

(c) GRANTS Defendants' motion to dismiss as to Plaintiffs' allegations regarding Fannie's internal controls and risk management as to Swad and Blakely; and

The Clerk of Court is directed to close the motions at docket numbers 155, 156, 161, 163, and 167.

Dated: New York, New York

September 30, 2010