Fannie Mae: Depositions/Emails Unraveling Government’s Defense [Redacted Documents Enclosed]


Fairholme is fighting to have depositions in the GSE litigation (Fannie Mae) made public. There are several arguments for it (1st Amendment etc) but for our purposes we are going to focus on “what” the government is so desperately trying to hide:

In Mario Ugoletti’s (FHFA) and Anne Eberhardt’s (Grant Thornton) depositions, they made several statements that directly contradict previous statements made by the government.  Fairholme claims these statements not only undercut but directly contradict the arguments the Government made before Lamberth, arguments his final decision to dismiss was based on and they argue the Appeals Court should see them.

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Fannie Mae
Fannie Mae
Fannie Mae
Fannie Mae

The government argued the NWS was necessary because the GSE’s were in a “death spiral” in which they were unable to pay the 10% dividend and would have to continually borrow from the government to pay it making the future payments only higher. They argued that the payment in kind provision was a “penalty” and Lambreth bought into it in his decision ruling the GSE’s were in fact in the claimed “death spiral” and the NWS was justified. It would seem an email from Ugoletti counters the “penalty” claim.

The government also argues that at the time the NWS was enacted, they had not yet even considered the fact that the DTA’s will be being reversed so causing over $100B to flow back to the Treasury. Again, documents uncovered directly counter that claim.

Screen Shot 2015-07-15 at 9.53.28 AM Fannie Mae
Fannie Mae

This is the bigger. a main crux of shareholders argument is that FHFA was not acting as regulator but as a rm of the government, specifically Treasury. If that is indeed true, then FHFA violated HERA and their actions are illegal. Treasury/FHFA of course argue that is not true.  Lamberth ruled there was no evidence Treasury directed the action at FHFA and thus whatever FHFA did was then ok. I’ve said since day 1 Lamberth’s decision was slovenly in that he abdicated his responsibilities in these cases to Sweeney rather than conduct discovery to actually find out if there was evidence.  Again, documents uncovered suggest Treasury was in fact in control over what was happening, a direct violation of HERA

Screen Shot 2015-07-15 at 9.54.05 AM Fannie Mae
Fannie Mae

Further the value of the commitment to the GSE’s was claimed to be “incalculably large” by the defense. Funny but it turns out Treasury and FHFA had several calculations for the value of it under different scenarios.

Screen Shot 2015-07-15 at 9.54.59 AM Fannie Mae
Fannie Mae


I think these examples are bringing to light what many of us had assumed but not been able to prove for some time, the government, in its defense was less than honest. These documents and depositions are knocking one leg after another out from under the defense table.

Fannie Mae Full Filing (pdf)


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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”.