More Scare Tactics From WSJ in Fannie Mae, Freddie Mac Litigation Coverage

More Scare Tactics From WSJ in Fannie Mae, Freddie Mac Litigation Coverage

Fannie Mae

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More Scare Tactics From WSJ in Fannie Mae, Freddie Mac Litigation Coverage by Todd Sullivan, ValuePlays

This piece is one of those “we have not written on Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)  in a while so lets just throw some conjecture and hypotheticals out there for some page views”. Legally, the entire piece is a non starter and I HAVE to believe had the Journal asked even a 1st year law student they could have found this out. This is the reason I am of the opinion the WSJ has taken a corporate stance on these cases and it is prevalent across their coverage in all sections (FTR Nick Tirimos has done the only balanced coverage I have seen).

The obvious response will be “well why did government lawyers file then?”. It is a hail Mary, one of those “what the hell, let’s try it anyway….” filings. It costs them nothing but the filing fee. It does not mean however there is any realistic chance of it succeeding and giving it credence that it in fact might is disingenuous at best. Junk like this is filed all the time, it clogs the courts….they have an obligation to try everything no matter how remote the odds of success are.

Fannie Mae, Freddie Mac’s profit sweep

The WSJ writes:

Gates Capital Management Reduces Risk After Rare Down Year [Exclusive]

Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More

The volatile shares of Fannie Mae and Freddie Mac may face another legal shock.

In September, a federal court dismissed lawsuits brought by Fairholme Funds and Perry Capital over the government taking the profits of Fannie Mae and Freddie Mac. Following that, Pershing Square Capital Management filed a voluntary notice of dismissal for its own lawsuit before the same court.

Oddly, lawyers for the government have asked the court to reject this. It isn’t that they want Pershing Square’s lawsuit to proceed. Rather, they argue that since the issues raised in that one are so similar to those in the other two suits, the judge should rule that his dismissal of those also dismissed Pershing Square’s.

If the judge agrees, shares of Fannie Mae and Freddie Mac could plunge again. And given that the case is before the same judge that dismissed the other suits, that is a real possibility.

Pershing Square’s involvement could magnify the reaction. Recently, the hedge fund’s outspoken chief, Bill Ackman, has become the most visible advocate for Fannie Mae and Freddie Mac shareholders. Shares rose 9.9% after he revealed last Wednesday he had recently added to his bets on the firms.

The risk centers on timing. Plaintiffs in federal court usually must file an appeal within 60 days of a final decision. So if Pershing Square’s case turns out to have been legally dismissed with the others on Sept. 30, the window to file an appeal has closed already. That would leave Pershing Square relying on Fairholme’s and Perry’s appeals and unable to make its own arguments to the court.

Pershing Square has also filed suit in the U.S. Federal Court of Claims. The government has asked that court to put the cases on hold pending the appeal of the D.C. district court’s decision. Fairholme wants to push forward.

The twisted logic goes like this: We have to assume Pershing’s case, which now no longer exists and the law says (about a voluntary dismissal) “This is a matter of right running to the plaintiff and may not be extinguished or circumscribed by adversary or court” somehow must now be revived by the court that never took any action on it or held any hearing nor was any response to it filed by defendants only to then backdate an action on it to dismiss it along with cases it was never consolidate with.

Follow that? Because if you think the government’s motion has even a chance at succeeding, you have to 100% believe the above

Here is another oddity from the editorial folks of the Journal. They are hanging their unwavering defense of the government in the Fannie Mae and Freddie Mac litigation on HERA’s wording (paraphrasing) “no court may take any action that interferes with the actions of the conservator”. Yet, here, when the law says of a voluntary dismissal “this is a matter of right running to the plaintiff and may not be extinguished or circumscribed by adversary or court“, well, let’s just ignore that and write the piece anyway. Now, maybe they did not know about this law? I guess I’d just say don’t they have a “journalistic responsibility” to at least make an attempt to find out? If they did inquire and knew this, doesn’t the same “journalistic responsibility” dictate they at least include it…..but why do that if it counters the point of what you are writing. There is no way one could not make the case it isn’t material to what was written

Here is another oddity….. the WSJ ran this piece on 12/21 after Pershing announced on 12/17 it has added to its stakes and the stock price had run up. However, the government had filed its motion back on 12/4. Why did the WSJ wait three weeks to run this piece? Are they simply holding stuff until shares run up to try and stomp on it? Or is this a case of “shares are rallying, we got to find something to stop it” and then they throw something together like you see above. Were they unaware of the 12/4 filing and only after Ackman announced he added to his stakes did they go out to attempt to stifle the inevitable rally his announcement would cause?

Here is the government motion: Government motion 12:4

Again, this type of stuff goes to an overall theme on this litigation from the folks there……

Fannie Mae: Peter Chapman on Pershing Square lawsuit

Peter Chapman opines (emailed to me 12/21):

Pershing Square has no intention of appealing to the D.C. Circuit from its Complaint filed on Aug. 15. Pershing Square ended that lawsuit voluntarily on Oct. 31 and has nothing to appeal…..

There’s language in a Fifth Circuit decision in American Cyanamid v. McGhee — see — that explains Pershing Square’s Notice of Voluntary Dismissal pursuant to Rule 41(a)(1) euthanized its lawsuit in the District Court on Oct. 31, the Government has nothing more to say, and there’s nothing for Judge Lamberth to do:

“Voluntary dismissal of civil actions in federal courts is governed by Rule 41(a), Federal Rules of Civil Procedure. Within this Rule there are three separate and distinct methods of voluntarily dismissing a suit. The first and second methods are covered by Rule 41(a)(1) which provides for a dismissal by notice, and dismissal by stipulation of the parties. The third metho[d] is found in Rule 41(a)(2) which provides for a dismissal by order of court upon such condition as the court considers just.

“Rule 41(a)(1) is the shortest and surest route to abort a complaint when it is applicable. So long as plaintiff has not been served with his adversary’s answer or motion for summary judgment he need do no more than file a notice of dismissal with the Clerk. That document itself closes the file. There is nothing the defendant can do to fan the ashes of that action into life and the court has no role to play. This is a matter of right running to the plaintiff and may not be extinguished or circumscribed by adversary or court. There is not even a perfunctory order of court closing the file. Its alpha and omega was the doing of the plaintiff alone. He suffers no impairment beyond his fee for filing. * * *”


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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