Fannie Mae Discovery Materials “Completely Discredit Government’s Defense”

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Fannie Mae Discovery Materials “Completely Discredit Government’s Defense”

From the filing:

Materials produced in discovery in this case and included in the attached appendix undermine, and in some instances completely discredit, important components of the central narrative on which the Government’s defense in the D.C. Circuit action was based, and Plaintiffs should be accorded the opportunity to fully apprise the D.C. Circuit of that reality while briefing is still ongoing.

Plaintiffs will not recount here the relevance of every item in the appendix to the issues in dispute in the D.C. Circuit action, but the deposition transcript of former Fannie Mae CFO Susan McFarland is illustrative. As we explained in our motion to de-designate the transcripts of the depositions of Edward DeMarco and Mario Ugoletti, a key point of dispute in the D.C. Circuit action is what the government knew about the potential for Fannie and Freddie to reverse their deferred tax assets valuation allowances at the time of the Net Worth Sweep. See Depositions Motion 12.

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We further explained that Mr. Ugoletti’s deposition testimony revealed that he had no basis for stating in a declaration submitted to the D.D.C. that “neither the Conservator nor Treasury envisioned at the time of the Third Amendment that Fannie Mae’s valuation allowance on its deferred tax assets would be reversed in early 2013, resulting in a sudden and substantial increase in Fannie Mae’s net worth . . . .” Id. at 11 (quoting Declaration of Mario Ugoletti ¶ 20, Perry Capital LLC v. Lew, No. 13-1025 (D.D.C. Dec. 17, 2013), ECF No. 24-2). Ms. McFarland’s testimony further undermines Mr. Ugoletti’s declaration. During her July 15 deposition, Ms. McFarland testified that:

In short, Ms. McFarland’s testimony further demonstrates that information the government submitted to the D.D.C. is, at best, incomplete and misleading, if not outright false. To “protect the integrity of the judicial process,” Plaintiffs should be able to alert the D.C. Circuit to that fact. See New Hampshire v. Maine, 532 U.S. 742, 749 (2001).

Fairholme has also said they intend to ask Judge Lamberth to reconsider his dismissal given the information uncovered in the depositions.  Being reversed on appeal for a Judge is hugely embarrassing and essentially the higher court saying “you screwed up”.  By filing with Lamberth, Fairholme is giving him the opportunity to avoid reversal given new information he was not privy to when he made his initial decision.

Fannie Mae 83-Filing-

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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 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”.