Fannie Mae, Freddie Mac Saga Is A Comedy Of Errors

Fannie Mae, Freddie Mac Saga Is A Comedy Of Errors

Fannie Mae

Photo by NCinDC

This would be more than a little bit comical if there weren’t nearly half a trillion dollars at stake (in current, past and future shareholder value)…

In my post on the government’s Discovery Motion Monday I said:

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Additionally, not only do they seek to limit who Fairholme can talk to and lengthen the time for discovery, they then spend the majority of the document re-arguing why there should be no discovery at all. Nothing pisses off a Judge more than having their ruling re-argued in every brief that is submitted. Telling the Judge “discovery should be limited because the ruling to allow it was wrong” I’m gonna go out on a limb and say does not endear oneself to them.

That fact wasn’t lost on Fairholme (Fairholme Fund (MUTF:FAIRX)) lawyers either it seems as they pointed out the same in their filing on Tuesday.

From the brief (Fairholme Response 3-25):

The Government devotes seven and a half pages of its ten-page filing not to a defense of its own discovery schedule proposal, but rather to a critique of Fairholme’s proposal. Defendant’s Proposed Plan for Discovery (Doc. 37) (filed March 21, 2014) (“U.S. Plan”), at 3-10. Fairholme is obliged to note that the Court is not alone in seeing that critique for the first time when the Government filed its plan. The Government had never shared any of its views regarding Fairholme’s plan with Fairholme, notwithstanding the fact that Fairholme expressly invited the Government to share any objections it had regarding that proposal. See Ex. 1 at 2 (email ex- changes between Fairholme’s counsel and Government counsel regarding discovery schedule proposal). Unfortunately, this is in keeping with the Government’s apparent strategy since the Court issued the Discovery Order. See Order of February 26, 2014 (Doc. 32) (“Discovery Order”). Almost immediately after the Discovery Order was entered, Fairholme reached out to the Government in order to open a dialogue about a discovery plan and schedule. In fact, over the last month, Fairholme has made at least three separate attempts to initiate such a dialogue with the Government, only to be peremptorily rebuffed each time. See Ex. 1.

As to the merits of the Government’s objections, we have a few brief points to make. First, many of the Government’s critiques are actually attempts to rehash arguments that it has already made as part of its unsuccessful attempt to ward off any and all discovery. From its claim that the discovery Fairholme seeks is unnecessary (U.S. Plan 3), to its naked assertion that Fairholme is seeking “essentially unlimited discovery” entailing the production of millions of pages of documents (U.S. Plan 4, 5-7), to its unsupported (and facially ludicrous) contention that discovery would “restrain or affect” the exercise of FHFA’s powers as conservator (U.S. Plan 5), the Government dresses up as critiques of Fairholme’s proposal arguments that it had made either in its original opposition to Fairholme’s discovery motion or in its recent motion for reconsideration. The Court rejected these arguments when it granted Fairholme’s discovery motion and denied the Government’s motion for reconsideration, and it should again reject these arguments when considering the parties’ competing discovery schedule proposals.

The government still can’t get off the fact this case has not been thrown out and discovery is moving forward.  They continue to lose arguments (rulings) not only because their stance on the case is wrong, but because they continue to argue past rulings vs addressing what is in front of them. This continually puts them behind Fairholme Fund (MUTF:FAIRX) lawyers who up until this point have not only seemed a step ahead, but three or four.  This is indicated by the fact the vast majority of any gov’t brief (7.5 of 10pgs in this case) focuses on why “Fairholme is wrong” vs  ”why Treasury/FHFA is right”.  It is a subtle but enormously important difference.  You don’t build your case by simply sitting back and saying “they are wrong”. You build your case by detailing why you are right.  Now, of course it does not help that the Court has dismissed gov’t arguments to date, but their current strategy won’t get this done.

The question we have to ask then is, is the weak strategy simply a results of an untenable legal position or bad lawyers? My opinion is that is is the former.

This stance by the gov’t is simply letting Fairholme guide the case in the direction it wants it to go.

As a shareholder (FANNIE MAE PFD S (OTCBB:FNMAS) Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)), I’m fine with that as plaintiffs in both cases (DC district and Fed Court of Claims) have yet to have a ruling go against them.

via: valueplays

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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 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”.

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