Dan Freed of TheStreet reported earlier today that Bill Ackman’s Pershing Square would be filing a lawsuit over the Government’s treatment of Fannie Mae and Freddie Mac shareholders. Pershing Square has just officially filed suit. Below readers can see the press release as well as the full court document.
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Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) lawsuit
New York, N.Y, August 14, 2014 //- Today, common shareholders of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) filed suit in the U.S. Court of Federal Claims seeking to remedy the federal government’s unlawful taking of shareholders’ rights and property in Fannie and Freddie and other violations of law. The shareholder plaintiffs are three individuals and Pershing Square Capital Management, L.P. (“Pershing Square”). The defendant is the United States government, including the U.S. Department of the Treasury and the Federal Housing Finance Agency (“FHFA”).
The complaint challenges the government’s ongoing confiscation of all profits of Fannie Mae and Freddie Mac (the “Companies”). According to the filing, the government is expropriating the Companies’ profits through a 2012 arrangement (the “Net Worth Sweep Agreements”) by which FHFA, purportedly acting as the conservator of the Companies, and Treasury agreed to strip all earnings from both Companies and sweep them to Treasury in cash, every quarter, in perpetuity. These Net Worth Sweeps implement what internal Treasury documents had earlier described as the Administration’s “commitment” to “ensure existing common equity holders will not have access to any positive earnings from the [Companies] in the future.”
The three individual common shareholders who have brought this suit are a retired nurse who holds common shares of Fannie Mae first purchased over 25 years ago and a retired scientist and retired psychiatric social worker who have held Fannie Mae common shares for approximately 15 years. They are joined by Pershing Square, which is the Companies’ largest common shareholder, with an approximate 10% stake in the outstanding common stock of each Company. Today’s complaint follows other lawsuits, brought primarily by institutional shareholders of the Companies’ preferred stock, which also challenge the Net Worth Sweep Agreements. The common shareholders bringing today’s suit seek to challenge the government’s illegal actions and vindicate and protect their rights as common shareholders of the privately owned, for-profit Companies as chartered by Congress.
Applicable law requires FHFA as conservator to “preserve and conserve” the Companies’ “assets and property” and to “put [them] in a sound and solvent condition.” Instead, through the Net Worth Sweeps the government has taken the Companies’ profits for itself without any compensation to the Companies’ shareholders. The Net Worth Sweeps treat the Plaintiffs—and all of the other common shareholders—as “shareholders” in name only, rather than as the owners of the Company with relevant property rights as conferred by law. Today’s complaint charges that the government’s action violates the Takings Clause of the Fifth Amendment to the United States Constitution as well as FHFA’s implied contractual duties.
The government’s confiscation of the entire earnings of the Companies also violates federal statutes and the government’s fiduciary duties to the Companies’ shareholders, and the plaintiffs in this case intend to pursue their legal rights on those claims separately in an appropriate forum.
ABOUT PERSHING SQUARE
Pershing Square, based in New York City, is an SEC-registered investment advisor to private investment funds. Funds managed by Pershing Square own securities of Fannie Mae and Freddie Mac. Pershing Square may increase, decrease, dispose of, or change the form of its
investment in Fannie Mae and Freddie Mac for any or no reason, at any time. Pershing Square disclaims any obligation to notify the market of any such changes.