Fannie Mae, Freddie Mac: Perry Capital v Treasury, FHFA Response

Fannie Mae, Freddie Mac: Perry Capital v Treasury, FHFA Response

The scope of this lawsuit is slightly different than the scope of the $FAIRX lawsuit.

Fairholme is arguing chiefly that the FHFA both was negligent in its role as conservator (did not conserve the assets but began disposing of them) and acted in concert with Treasury  in violation of HERA and its role when it enacted the NWS. Fairholme states that because of that, FHFA was NOT acting in its role as regulator but as an arm of the government and then the Net Worth Sweep (NWS) is hence illegal as a 5th Amendment taking and shareholders are entitled to just compensation for the loss of their property (shareholders rights).

Perry is stating that Treasury acted “arbitrarily and capriciously” because its authority to purchase securities in Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s expired in 2009 (the NWS was enacted in 2012) and even if you argue the authority did not expire in 2009, Treasury was required to make “statutorily required determinations upon consideration of statutorily defined criteria” before any alterations to terms and this was not done. Further, FHFA’s acted “arbitrarily and capriciously” as their sole role was to render the Fannie Mae and Freddie Mac’s “sound and solvent and to conserve their assets and property” not begin to dispose of them.

Both similar arguments but different enough to be maintained as separate suits.  Oh, Perry’s Attorney is Ted Olson

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The government is trying to to have the Judge throw out the Perry suit (motion to dismiss filed) and to “Take Judicial Notice” of certain “facts” in the case and then render a summary judgement in favor of the defendants (gov’t)

Below is Perry’s response to the gov’t motion…

You’ll notice similar features to the work done on behalf of the gov’t from the  Fairholme suit discussed yesterday. The gov’t asks for facts to be entered essentially because “we say they are the facts of the case” and then they go about contradicting their own arguments in several places.

This motion for Judicial Notice will be dismissed (plaintiffs will win) and then I’m sure a discovery request will be presented by the plaintiffs like in the Fairholme suit. Again, I expect that to be granted as the Treasury/FHFA arguments for dismissal were the same in both cases and they made the same mistakes (presenting “facts” (that are disputed as fact) outside the scope of the original complaint to support the motion to dismiss) in both filings that basically leave the judge no option but to grant discovery.

Perry v Treasury-FHFA

Fannie Mae, Freddie Mac: Perry Capital v Treasury, FHFA Response via ValuePlays

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About the Author

valueplays
Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.