``But U.S. District Judge Paul Crotty in Manhattan said the SEC plausibly alleged that Mudd, former Chief Risk Officer Enrico Dallavecchia and former Executive Vice President Thomas Lund materially misled investors by not disclosing exposures to risky mortgages that totaled more than $440 billion.

"They must have known that Fannie Mae's disclosed subprime and Alt-A exposure calculations were materially misleading," Crotty wrote on Friday. "Defendants' conduct in making, or aiding others that made, these misstatements constitutes and extreme departure from the standard of ordinary care."''

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