Fannie Mae: Government Trying to Delay Fairholme Deposition of Officials

Updated on

Fannie Mae – Sweeney has set 3/31 as the date to hear arguments on the latest Staus Conf request

At issue is the government trying to squash the deposition of officials by Fairholme ($FAIRX):

In accordance with this Court’s Order of August 13, 2014 (Doc. 85), the parties hereby notify the Court that they believe that it should hold a status conference to discuss Plaintiffs’ decision to move forward with depositions of Government witnesses before the Government has completed its production of documents.

Peter Chapman opines:

Because Fairholme has not disclosed to date what subpoenas, if any, it has served, we don’t know what Government witnesses might have received subpoenas from Fairholme.

Based on the privilege log excerpts shared in Fairholme’s latest letter to shareholders — see — Tim Geithner, Michael Stegman, and Timothy Bowler seem like likely candidates to receive subpoenas from Fairholme.

If the individual in receipt of the subpoena or the Government were to move to quash or modify a subpoena, that action would typically be filed in the U.S. District Court where the individual resides rather than in the Court of Federal Claims.  With that in mind, I’ve done a quick search for federal court actions in February and March 2015 involving these three gentlemen.  Nothing bubbles to the surface.  That said, I don’t think there’s any active litigation in other federal courts over any Fairholme subpoenas that’s been overlooked.  It’s possible, but improbable.

At the next Status Conference, it will not be hard to imagine that the Government’s lawyers will be saying something along the line of, “Your Honor, no individual Fairholme wants to depose at this early stage can possibly provide any testimony that will help you decide whether you have jurisdiction to consider Fairholme’s complaint and our motion to dismiss that complaint.  That’s a decision that you, Your Honor, need to make based on the evidence you already have.  And the right answer, Your Honor, is that you don’t have jurisdiction, because shareholders hold physical shares in Fannie and Freddie in their brokerage accounts.  The same shares that held prior to execution of the Third Amendment are still there today, and the speculators who purchased shares following execution of the Third Amendment still own those same shares today.  The Government’s taken nothing.  The losses some shareholders have realized are merely a reflection of reality in owning common stock in insolvent companies, and the shareholders who acquired shares at their absolute bottom and have realized a profit can’t be heard to complain.”  Fairholme, of course, will not agree with our Government’s myopic view of the law and the facts and encourage Judge Sweeney to view everything that’s happened from a much broader perspective.

My two cents on Fannie Mae:

Sweeney has said that “plaintiffs will have their day in court”. Deposing witnesses from the other side is part of that process. Part of what is being claimed here (in simple terms) is that FHFA was not acting as an independent regulator and in fact as an arm of the US Treasury in which case the government’s motion to dismiss cannot be granted as it means FHFA was in violation of HERA.  Depositions must happen as part of the discovery process. Because the government has dragged its heels in producing documents, the deadline for document discovery has been extended from March to June.

The objection above is simply another attempt to further delay proceedings in hopes a legislative solution to Fannie Mae is reached before this goes to trial.

I am of the opinion Sweeney, based on her earlier decisions sees through this and allows Fannie Mae depositions to proceed. The government before Sweeney has had very little success to this point. Even should they prevail here it is not an indicator of an outcome of the case, just notice that a resolution is being pushed out farther.

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