The Massachusetts Pension Reserves Investment Management (PRIM) Board today announced a proposed $170 million settlement with Fannie Mae in the securities class action suit that alleged the government-sponsored entity misled investors about the company’s internal controls and its exposure to risky loan products.

Today’s settlement is the first step in a process that will return to PRIM and other shareholders a portion of the assets lost due to alleged securities fraud by Fannie Mae and several of its former executives, PRIM said in a press release announcing the settlement.

"We are proud to have helped negotiate a meaningful recovery for Fannie Mae investors by stepping forward in this case," PRIM Board Executive Director Michael Trotsky said in the statement. "Pursuing meritorious litigation where we believe we can add value is part of the PRIM Board’s overall strategy to maximize all asset classes in which we are invested, including potential class-action recoveries."

The lead plaintiffs asserted securities fraud claims against Fannie Mae and two of its former officers on behalf of investors in Fannie Mae during the class period of Nov. 8, 2006, to Sept. 5, 2008. Specifically, the lawsuit alleged that the defendants violated the Securities Exchange Act of 1934 by making false and misleading statements concerning the company’s internal controls and its exposure to subprime and other risky mortgage loan products.

 The plaintiffs further alleged that Fannie Mae’s true exposure to these risky assets was revealed in a series of partial disclosures that culminated in the Sept. 7, 2008, announcement by the company’s regulator, the Federal Housing and Finance Agency (FHFA), that it had placed the company into conservatorship.

The arrival at a settlement figure will also help the plaintiffs’ expert develop a plan to determine just how much of PRIM’s and other shareholders’ losses can be directly attributed to the alleged securities fraud. Once the court approves such a plan, a court-appointed claims administrator will oversee the administration of claims pursuant to allocation plan in which shareholders, including PRIM, are awarded portions of the settlement in proportion to their damages as compared with the damages of others, and based on the overall claims submitted by class members. That process could take several months to complete, PRIM said.