On July 9, 2013, the Fairholme Fund, a mutual fund with over 170,000 shareholders, announced it would be filing lawsuits in the United States Court of Federal Claims and the United States District Court for the District of Columbia. The Fairholme Fund asserts that its goal is to protect its shareholder rights as an owner of preferred stock in Fannie Mae and Freddie Mac.
According to Bruce R. Berkowitz, the Chief Investment Officer of Fairholme Capital Management, The Fairholme Fund “…is owed a contractually specified, non-cumulative dividend for its investment in these companies.”
Cooper & Kirk, PLLC, on behalf of Fairholme, is challenging the Treasury and the Federal Housing Finance Agency’s alteration of the original Preferred Stock Purchase Agreement in August 2012 with a ‘dividend sweep.’ This newly created ‘dividend sweep’ stipulates that Fannie Mae and Freddie Mac owe all future profits to the Treasury. Fairholme asserts that Treasury’s amendment of this agreement hinders the GSE’s ability to rebuild capital reserves, redeem Treasury’s government stock, or distribute dividends to preferred stockholders. The complaint asserts that Fairholme is entitled to just compensation under the Fifth Amendment of the U.S. Constitution.
The full complaint can be found here. Cooper & Kirk, PLLC’s website can be found here.
On June 10, 2013, Spector Roseman Kodroff & Willis, P.C., and Hagens Berman Sobol Shapiro, two leading class-action law firms, filed a lawsuit against the United States government on behalf of a proposed class of investors who held common and preferred stock in Fannie Mae and Freddie Mac.
These firms assert in the lawsuit that the U.S. government wiped out an enormous amount of shareholder value when it entered into a conservatorship with Fannie Mae and Freddie Mac, and did so without just compensation or due process. The lawsuit claims that this resulted in a violation of the Due Process and Takings clauses of the Fifth Amendment of the U.S. Constitution.
The lawsuit has been filed in the U.S. Court of Federal Claims. Shareholders who held Fannie Mae or Freddie Mac stock on or before September 5, 2008 may be entitled to compensation and should contact these two firms.
The full complaint can be found here. More information about this case can be found on Hagens Berman Sobol Shapiro’s website here. Spector Roseman Kodroff & Willis, P.C.’s website can be found here.
On July 7, 2013, Gibson Dunn & Crutcher filed a lawsuit against the above named defendants on behalf of the hedge fund Perry Capital LLC, a shareholder in Fannie Mae and Freddie Mac, two government sponsored enterprises (GSEs) which are currently under conservatorship of the Federal Housing Finance Agency (FHFA).
On August 17, 2012, the Treasury and the FHFA amended the Preferred Stock Purchase Agreements (PSPAs) and stock certificates which were originally used to initiate a conservatorship of the two GSEs. This amendment, referred in the complaint as the ‘Third Amendment,’ modified the structure and nature of the securities that the Treasury purchased under the original PSPAs. The Third Amendment created a ‘dividend sweep,’ by which all future profits of each firm are owed to Treasury moving forward.
The complaint asserts that this action is an overreach by the federal government, unnecessarily destroys the GSEs’ private shareholders’ value, and challenges this action under the Administrative Procedure Act and the Housing and Economic Recovery Act of 2008. The complaint claims that, due to these actions, Perry Capital LLC is entitled to relief.
More information about this lawsuit, and the full complaint, can be found here. Gibson Dunn & Crutcher’s website can be found here.