Charges Dismissed Against Goldman Sachs in Fannie Mae Securities Lawsuit

Shareholders who lost money following Fannie Mae's accounting scandal may not include investment house Goldman, Sachs & Co in a securities fraud lawsuit against the mortgage giant, a federal judge said Tuesday.

U.S. District Judge Richard J. Leon dismissed all allegations against Goldman Sachs. Shareholders of Fannie Mae had accused Goldman Sachs of arranging deals that allowed Fannie Mae to shift more than $107 million in earnings into future years without properly informing investors.

Fannie Mae buys mortgage loans from lenders, packages the loans and sells them as mortgage-backed bonds. Regulators accused the agency in 2004 of serious accounting problems and ordered it to restate earnings back to 2001.

Fannie Mae ousted its executives and, when it corrected its past earnings statements, it wiped out $6.3 billion in profit. It has spent more than $1 billion correcting its accounting practices.

Leon said there's no evidence Goldman Sachs prepared any of Fannie Mae's misleading financial statements or knew about them in advance. The company did not violate any duty to Fannie Mae shareholders, Leon said.

The securities case continues against Fannie Mae, some of its past and present officers and directors, accountants and other financial services firms.

Last week, Fannie Mae, which is the second-largest U.S. financial institution after Citigroup Inc., filed its first public reckoning of finances since it restated its earnings. The company said its profits rose 26 percent in 2005 but expected to report lower earnings for 2006. It also named a new chief financial officer and raised its dividend.

Goldman Sachs had already been dropped as a defendant in a shareholders derivative lawsuit, in which investors sue in the company's name. That case is also pending against former Fannie Mae executives.

Shares of Fannie Mae closed up 82 cents to $62.50 on the New York Stock Exchange. Goldman Sachs shares closed down $2.27 at $224.95.

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