Fannie Mae Preferred S (FNMAS)

[thewhale]

The weakness of the Delaware suit is that it doesn’t point to a clear violation of Delaware corporate law.

The suit derives that it is illegal to sweep all profits to a single class of shareholders (Treasury) at the exclusion of others because state law provides for the potential distribution of dividends to every class. Neither Delaware law nor Virginia law specifically proscribe a sweep. Probably since nobody could contemplate such an egregious term in a security. Under the line of reasoning in the Delaware case, Govt need only sweep 99.9% of profits, leaving 0.1% to all other classes to comply with the law.

Delaware law also provides for a company’s redemption of shares as does Treasury’s Preferred Stock Certificate. It seems that a legal case at least as strong as the current Delaware case filed would contend that the Third Amendment violates both the terms of the Stock Certificate along with Delaware law on redemption. You can’t redeem stock if the subsequently restructured terms of the stock preclude earnings used to redeem that stock.