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yeah it is
September 30, 2013 Estimated Book Value
The Company announced today that it has estimated that as of September 30, 2013, its GAAP book value was $3.47 per share and its economic book value was $2.98 per share, compared to its estimated June 30, 2013 GAAP book value of $3.52 per share and economic book value of $3.01 per share.
Estimated economic book value considers the fair values of only the assets the Company owns or is able to dispose, pledge, or otherwise monetize, and specifically excludes assets consolidated for GAAP but which the Company cannot dispose, pledge or otherwise monetize. The Company's estimate of economic book value has important limitations. Should the Company sell assets in its portfolio, it may realize materially different proceeds from the sale than estimated as of the reporting date.
Fourth Quarter 2013 Dividend
The Company declared the fourth quarter 2013 common stock cash dividend of $0.09 per common share. This dividend is payable January 24, 2013 to common shareholders of record on December 31, 2013. The ex-dividend date is December 27, 2013.
For the nine months of 2013, the Company paid cash dividends totaling $0.27 per common share, of which the Company estimates $0.22 per share is taxable income for federal tax purposes. Taxable income and the ultimate composition of the dividend between income and return of capital are calculated on a cumulative basis and will change over the course of the year. The character and composition of the dividend will not be finalized until the Company files its 2013 tax return in 2014.
Continuation of Dividend Program
As previously announced, the Company initiated a regular quarterly dividend of $0.09 per common share for each of the quarters in 2013. The Board of Directors has reviewed the dividend program and will continue to pay a dividend of $0.09 per share for the first and second quarter of 2014. Portions of these dividends and those paid in 2013 may be ordinary income, capital gains or a return of capital
Dollar Cost Average
that is correct...I have averaged down on agnc...but still a bit over the current pps. I'm expecting the bumps will level out in the next couple years and my DCA will be around 10% below prevailing pps at that point.
agreed...I've averaged down over the years and now have a very nice position well below the current pps. and as you stated...the div keeps on keepin on.
would you please show the math...or a link to data that reflects this $60 plus BV...everything I find shows a negative.
this is a dead stock...you can do a few things with it. Pay your broker to have them declared worthless and take the write off...and your broker will happily do this for you...for a price.
Probably won't have time to do it this year...typically takes a few weeks to a month or more depending on your broker.
Keep in mind you can only deduct I believe $3000 a year in stock losses.....something to verify as I haven't checked it for a few years.
You can get a cert by requesting your broker send it to you....again a cost to that as well.
Frame the cert and hang it over your toilet ...I did this
use the cert for toilet paper
keep the shares and hope by some fantastic miracle it comes back.
IN THE UNITED STATES COURT OF FEDREAL CLAIMS
LINK
https://docs.google.com/viewer?a=v&pid=forums&srcid=MDUxNDQwNjExMTIwMzQzNjc3NDIBMTE2OTE2ODE0MzY2NzEzOTcxMTIBWEt4X3lNaW9Nc3dKATQBAXYy
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 1 of 36
IN THE UNITED STATES COURT OF FEDERAL CLAIMS
Bryndon Fisher, Bruce Reid, and
Erick Shipmon, derivatively on behalf of
Federal National Mortgage
Association,
Plaintiffs,
v.
The United States of America,
Defendant,
and Federal National Mortgage
Association
Nominal Defendant.
No. 1:13-cv-00608-MMS
FIRST AMENDED CONSOLIDATED DERIVATIVE COMPLAINT
Upon personal knowledge as to their own acts and status, and based upon their
investigation, their counsel’s investigation, and information and belief as to all other
matters, Plaintiffs Bryndon Fisher, Bruce Reid, and Erick Shipmon (“Plaintiffs”),
derivatively on behalf of the Federal National Mortgage Association (“Fannie Mae” or
the “Company”), allege as follows:
SUMMARY OF THE ACTION
1. This is a shareholder derivative action on behalf of Fannie Mae against
The United States of America (“United States” or the “Government”) and nominal
defendant Fannie Mae. This derivative action seeks just compensation for the taking of
the private property of Fannie Mae for public use by the United States, including the
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Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 2 of 36
Department of the Treasury (“Treasury”), the Federal Housing Finance Agency
(“FHFA”), and their respective agents.
2. In 2012, the Government imposed a “Net Worth Sweep” on Fannie Mae,
which required the Company to pay its entire net worth to the U.S. Treasury every
quarter in perpetuity. The Government’s taking of the entire net worth of Fannie Mae
effectively destroyed all value in the Company and amounts to a blatant overreach by the
Government in violation of the Takings Clause of the Fifth Amendment to the U.S.
Constitution.
3. Fannie Mae is a private corporation charged with maintaining a stable and
liquid secondary mortgage market by purchasing mortgage loans from other financial
institutions, issuing and purchasing mortgage-backed securities (“MBS”), and
guaranteeing privately-owned mortgage-backed securities.
4. During the mortgage-related financial crisis that began in 2007, Congress
created the FHFA, a federal administrative agency designed to oversee the operations of
Fannie Mae, and empowered it to serve as Conservator of the Company when necessary
to preserve its financial health. When exercising its statutory powers as Conservator, the
FHFA is obligated to manage the Company with the goal of putting it in a sound and
solvent financial condition while preserving and conserving its assets.
5. Congress also authorized the Treasury Department to provide financial
assistance to Fannie Mae. Treasury was authorized to provide this assistance by
purchasing securities issued by the Company if it determined that such purchases would
help stabilize financial markets, prevent disruptions in the mortgage markets, and
protect taxpayers.
!2
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 3 of 36
6. On September 7, 2008, the Director of the FHFA, who is nominated by the
President and confirmed by the U.S. Senate, placed Fannie Mae into conservatorship,
committing to “operate the [Company] until [it is] stabilized.”
challenge the legality of the FHFA’s initial placement of Fannie Mae into
conservatorship or claim that action was a taking—but rather challenges the
Government’s subsequent amendment to the terms of the conservatorship through the
imposition of the “Net Worth Sweep” in 2012.
7. In conjunction with the conservatorship in 2008, Treasury and the FHFA
executed a Preferred Stock Purchase Agreement (“PSPA”). Under the PSPA, the
Treasury Department purchased one million shares of Government Preferred Stock
from Fannie Mae in exchange for a funding commitment that allowed the Company to
draw up to $100 billion from Treasury as needed to ensure it maintained a positive net
worth. The Government Preferred Stock has a liquidation preference equal to $1 billion
plus the sum of all draws by the Company against Treasury’s funding commitment (the
“Liquidation Preference). The Government was entitled to a cumulative annual dividend
equal to 10% of the outstanding Liquidation Preference. The PSPA also grants Treasury
warrants to purchase up to 79.9% of the Company’s common stock at a nominal price.
8. Shortly after the FHFA imposed the conservatorship, Fannie Mae declared
large non-cash losses, largely due to the write-down of substantial deferred tax assets on
its balance sheet and taking large loss reserves. These accounting adjustments, which
reflected an overly pessimistic view of the value of the mortgages owned by Fannie Mae,
depleted the Company’s operating capital. As a result, the Government advanced over a
See Press Release, FHFA, Statement of FHFA Director James B. Lockhart, at 6 (Sept. 7, 2008), available 1
!
at http://www.fhfa.gov/webfiles/23/FHFAStatement9708final.pdf.
This suit does not 1
!3
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 4 of 36
hundred billion dollars pursuant to the PSPA to shore up the Company’s balance sheet.
These actions, in turn, substantially increased the annual dividends due to the
Government.
9. By 2012, with the housing market on a recovery path, Fannie Mae was
again profitable. The Company’s actual realized loan losses were tens of billions of
dollars less than had been expected. As a result, the Company reversed many of its
earlier write-downs of deferred tax assets and mortgages. Beginning in 2012, the
Company posted multi-billion dollar profits and announced that it expected to be
profitable into the foreseeable future.
10. By the end of the first quarter of 2012, Fannie Mae was so profitable that it
had sufficient money to pay all the dividends that it owed the Government pursuant to
the PSPA. With future profits expected to increase dramatically, the Company was
positioned to redeem all the Government Preferred Stock pursuant to the terms of the
the pre-Third Amendment PSPA by paying the entire Liquidation Preference and all
accrued dividends. This redemption would have permitted the Company to continue as
a financially solvent, viable, and valuable entity. The Government did not allow this to
happen. Instead, the Government acted unilaterally to amend the terms of the PSPA and
expropriated all remaining profits and value in the Company for its own public use,
without providing just compensation to the Company. Two government agencies
conspired to effectively dismantle Fannie Mae as a profitable company, and in the
process, swept every last penny of value from the Company. This action constituted an
unlawful taking in violation of the Fifth Amendment to the U.S. Constitution.
4!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 5 of 36
11. On August 17, 2012, two Government agencies, the FHFA and Treasury,
executed the Third Amendment to the Amended & Restated Senior Preferred Stock
Purchase Agreement (the “Third Amendment”). Under the Third Amendment, which
went into effect on January 1, 2013, the Government required Fannie Mae to pay the
Treasury Department dividends each fiscal quarter equal to the Company’s entire net
worth (the “Net Worth Sweep”). Under the Net Worth Sweep, the Government took the
entirety of the Company’s value in perpetuity. Instead of the Government requiring
Fannie Mae pay a quarterly dividend equal at an annual rate of ten percent of the
Government Preferred Stock’s Liquidation Preference, the Third Amendment required
Fannie Mae to pay every dollar of its net worth, less a small, temporary capital reserve,
to the Government, irrespective of the the outstanding Liquidation Preference.
the terms of the Third Amendment, payments made by the Company to Treasury
pursuant to the Net Worth Sweep, no matter how large, do not reduce the Government’s
outstanding Liquidation Preference. Accordingly, the Third Amendment completely
deprived Fannie Mae of all of its reasonable economic value.
12. By unilaterally imposing the Net Worth Sweep, the Government has
reaped—and will continue to reap—an enormous windfall for the U.S. Treasury. On or
about June 30, 2013, Fannie Mae paid the Treasury Department the largest quarterly
dividend in U.S. history: $59.4 billion. In September 2013, Fannie Mae made a $10.2
billion quarterly dividend payment to Treasury, and in December 2013, the Company
will make an $8.6 billion quarterly dividend payment to Treasury. Since the imposition
of the Net Worth Sweep, Fannie Mae will have paid the Government $78.2 billion in
Under 2
! The specified capital reserve steadily declines to zero in 2018. 2
!5
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 6 of 36
dividends, while under the pre-Third Amendment PSPA, the Company would have been
obligated to pay only $8.8 billion. By the terms of the Third Amendment, the additional
$69.4 billion that Fannie Mae paid to Treasury this year does not reduce the Liquidation
Preference at all. Absent the Third Amendment, Fannie Mae would have been able to
use its substantial profits in 2013 to dramatically reduce its Government obligations.
But the Third Amendment forbids it from doing so.
13. Under the Third Amendment, the amounts paid by Fannie Mae in
dividends do not—and will not ever—reduce the outstanding Liquidation Preference of
the Government Preferred Stock or reduce the amount of such stock outstanding. As a
result, the total Liquidation Preference remains $117.1 billion, even though the Company
has paid an additional $69.4 billion in dividends under the Net Worth Sweep. If Fannie
Mae had been allowed to reduce the Government’s Liquidation Preference through its
Government dividend payments, it would now be on track to completely pay off its
Government draws in 2014.
14. Instead, because the Third Amendment now requires that the
Government’s dividend payments be equal to the total net worth of the entire Company,
it will never be possible for Fannie Mae to reduce, much less eliminate, the Liquidation
Preference. The Government will continue to take the Company’s entire net worth for as
long as it remains in business. And it will never be possible for Fannie Mae to escape
conservatorship.
15. As the Government itself has acknowledged, the Government’s actions are
designed to benefit taxpayers, at the expense of the Company. Far from hiding its
6!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 7 of 36
motive, the Government’s stated goal of the Net Worth Sweep is to take “every dollar of
earnings [Fannie Mae] generates … to benefit taxpayers.”
16. However, under the Fifth Amendment to the U.S. Constitution, the
Government cannot simply expropriate private property, let alone take the entire net
worth of a legal, private company, without the payment of just compensation. And the
Government cannot enrich itself through a self-dealing pact among Government
agencies to take the entire value of Fannie Mae for public use by taxpayers.
17. The Third Amendment was not the result of an arm’s length agreement. To
the contrary, the Government amended its own Government Preferred Stock Agreement
by way of an “agreement” between two agencies of the federal government: the Treasury
Department and the FHFA. In essence, the Government agreed with itself to expropriate
the private property of Fannie Mae for the use of the Government.
18. In executing the Third Amendment, the Treasury Department openly
acknowledged that a primary purpose was to “expedite the wind down of Fannie Mae”
as a going concern.
Mae “will be wound down and will not be allowed to retain profits, rebuild capital, [or]
return to the market in [its] prior form.” Since this purpose falls outside the scope of the
FHFA’s statutory authority when acting as Conservator to Fannie Mae, the FHFA was
not acting as Conservator when it signed the Third Amendment. Instead, the FHFA was
acting as a Government agent when it signed the Third Amendment, and its and
Treasury’s actions amounted to a taking of private property for public, not private use.
! Press Release, Treasury, Treasury Department Announces Further Steps To Expedite Wind Down Of 3
Fannie Mae And Freddie Mac (Aug. 17, 2012), available at http://www.treasury.gov/press-center/press-
releases/Pages/tg1684.aspx.
! Id. 4
3
As Treasury explained, as a result of the Net Worth Sweep, Fannie 4
!7
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 8 of 36
19. While it is debatable whether the Net Worth Sweep constitutes sound
economic policy, one fact is unmistakable: the result of the Government’s actions is a
total taking of all economic value of Fannie Mae. Under the Fifth Amendment to the
U.S. Constitution, Fannie Mae is owed just compensation.
JURISDICTION AND VENUE
20. This Court has jurisdiction over this action pursuant to 28 U.S.C. §
1491(a). Venue is proper in this Court pursuant to 28 U.S.C. § 1491(a).
21. Pursuant to Rule of the Court of Federal Claims 23.1(b)(2), this is not a
collusive action to confer jurisdiction that this Court would otherwise lack.
PARTIES
22. Plaintiff Bryndon Fisher (“Fisher”) is a citizen of California. Fisher
currently owns and, at all relevant times, has owned 3,250 shares of nominal defendant
Fannie Mae’s common stock. Fisher has owned Fannie Mae common stock prior to, at
the time of, and continuously since the Government imposed the Third Amendment on
August 17, 2012.
23. Plaintiff Bruce Reid (“Reid”) is a citizen of California. Reid currently owns
and, at all relevant times, has owned 29,000 shares of nominal defendant Fannie Mae’s
common stock. Reid has owned Fannie Mae common stock prior to, at the time of, and
continuously since the Government imposed the Third Amendment on August 17, 2012.
24. Plaintiff Erick Shipmon (“Shipmon”) is a citizen of Arizona. Shipmon
currently owns and, at all relevant times, has owned shares of nominal defendant
Fannie Mae’s common stock. Shipmon purchased 68,100 shares of Fannie Mae
8!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 9 of 36
common stock prior to Government’s imposition of the Third Amendment on August 17,
2012, has owned these shares continuously since that time, and continues to own these
shares.
25. Defendant United States of America (“United States”) includes the U.S.
Department of Treasury (“Treasury”) and agents acting at the direction of Treasury.
Defendant United States also includes the Federal Housing Finance Agency (“FHFA”)
and agents acting at the direction of the FHFA when the FHFA acts outside the scope of
its statutory authority as Conservator to Fannie Mae under the Housing and Economic
Recovery Act of 2008 (“HERA”).
26. Nominal Defendant Federal National Mortgage Association (“Fannie Mae”
or the “Company”) is a federally chartered, government-sponsored enterprise that
supplies capital and liquidity for residential mortgages. Fannie Mae is a publicly traded
private corporation, has a Board of Directors (“Board”), and is required to report to the
Securities and Exchange Commission (“SEC”). Fannie Mae’s by-laws expressly provide
that Delaware General Corporation Law applies to the conduct of the Company.
NON-DEFENDANT DIRECTORS
27. Amy E. Alving (“Alving”) has served as a member of the Board of Directors
of Fannie Mae since October 2013.
28. William Thomas Forrester (“Forrester”) has served as a member of the
Board of Directors of Fannie Mae since 2008.
29. Brenda J. Gaines (“Gaines”) initially became a member of the Board of
Directors of Fannie Mae in September 2006, before the conservatorship, and the FHFA
reappointed her to Fannie Mae’s Board in December 2008.
9!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 10 of 36
30. Charlynn Goins (“Goins”) has served as a member of the Board of
Directors of Fannie Mae since 2008.
31. Frederick B. “Bart” Harvey III (“Harvey”) initially became a member of the
Board of Directors of Fannie Mae in August 2008, before the conservatorship, and the
FHFA reappointed him to Fannie Mae’s Board in December 2008.
32. Robert H. Herz (“Herz”) has served as a member of the Board of Directors
of Fannie Mae since 2011.
33. Philip A. Laskawy (“Laskawy”) became a member of the Board of Directors
and Chairman of the Board of Fannie Mae in September 2008.
34. Timothy J. Mayopoulos (“Mayopoulos”) has served as a member of the
Board of Directors of Fannie Mae since June 2012.
35. Diane C. Nordin (“Nordin”) has served as a member of the Board of
Directors of Fannie Mae since November 2013.
36. Egbert L. J. Perry (“Perry”) has served as a member of the Board of
Directors of Fannie Mae since December 2008.
37. Jonathan Plutzik (“Plutzik”) has served as a member of the Board of
Directors of Fannie Mae since November 2009.
38. David H. Sidwell (“Sidwell”) has served as member of the Board of
Directors of Fannie Mae since December 2008.
39. The directors of Fannie Mae are not named as defendants because, as
explained infra, the FHFA has effectively assumed all of the powers of the directors. The
directors, therefore, are not indispensable parties to this action.
!10
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 11 of 36
CONSTITUTIONAL PROVISION
40. Plaintiffs’ claim is governed by the Fifth Amendment to the United States
Constitution, which provides in pertinent part that no person shall “be deprived of life,
liberty, or property, without due process of law; nor shall private property be taken for
public use, without just compensation.”
FACTUAL ALLEGATIONS
History of Fannie Mae and Relevant Statutes
41. Fannie Mae was created by federal statute in 1938, at the request of
President Franklin D. Roosevelt, in an effort to provide a much needed supply of capital
to the nation’s home mortgage industry. Initially, it was authorized to purchase only
those mortgages that were insured by the Federal Housing Administration (“FHA”). For
the first thirty years of its existence, Fannie Mae was operated by the federal
government.
42. In 1968, Fannie Mae was privatized pursuant to the Housing and Urban
Development Act of 1968 (“HUD Act”). The HUD Act effectively partitioned Fannie Mae
into two separate and distinct entities: a reconstituted Fannie Mae and the Government
National Mortgage Association (“Ginnie Mae”). Fannie Mae was reorganized as a
government-sponsored private corporation tasked with serving the self-supporting
secondary mortgage market and authorized to purchase both FHA-insured and non-
insured mortgages. Ginnie Mae continued as a federal agency, responsible for the then-
existing special assistance programs.
43. Together with their sister entity, the Federal Home Loan Mortgage
Association (“Freddie Mac”), these private companies are commonly referred to as
!11
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 12 of 36
Government Sponsored Enterprises (“GSEs”), reflecting the fact that they are private
corporations created by Congress with the goal of increasing liquidity in the mortgage
market. Today, Fannie Mae endeavors to achieve this goal by purchasing mortgages
originated by private banks and bundling these mortgages into mortgage-related
securities that can be sold to investors. By creating this secondary mortgage market,
Fannie Mae increases liquidity for private banks, allowing them to make additional
loans to individuals to purchase homes.
44. Since 1968, Fannie Mae has been a privately-owned corporation, has
obtained funding from private capital, including common and preferred stock, which
have publicly traded on the New York Stock Exchange (“NYSE”).
2008, Fannie Mae regularly paid dividends on its common and preferred stock. And
before 2007, the Company was consistently profitable. In fact, Fannie Mae had not
reported a full-year loss since 1985.
45. In 1992, Congress enacted the Federal Enterprises Financial Safety and
Soundness Act (the “Safety and Soundness Act”). The Safety and Soundness Act created
the Office of Federal Housing Enterprise Oversight (“OFHEO”) as the new regulator for
Fannie Mae, imposed minimum capital requirements on the Company, and provided
OFHEO with the authority to impose a conservatorship in the event that Fannie Mae
became critically undercapitalized.
46. In 2007, the nation’s mortgage market began a precipitous decline as part
of the global financial crisis, and an increasing number of mortgages fell into
Prior to September 6, 5
! On June 16, 2010, Fannie Mae announced that, at the direction of the FHFA, its stock would be delisted 5
from the NYSE. On July 7, 2010, Fannie Mae stock ceased trading on the NYSE, and on the following day,
July 8, 2010, the Company began trading on the OTC Bulletin Board under the symbol FNMA. Fannie
Mae stock continues to be publicly traded on the OTC Bulletin Board.
!12
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 13 of 36
delinquency and default. Consequently, the markets lost confidence in the financial
health of Fannie Mae. Government officials attempted to allay these concerns and shore
up confidence in the GSEs. James B. Lockhart, then-Director of OFHEO confirmed that
Fannie Mae was “adequately capitalized, holding capital well in excess of [regulatory
requirements]” and had a “large liquidity portfolio[], access to the debt market and over
$1.5 trillion in unpledged assets.”
47. Nevertheless, given the critical importance of the housing market to the
broader U.S. economy and the need to instill confidence in the market, Congress
enacted the Housing and Economic Recovery Act of 2008 (“HERA”). HERA created the
Federal Housing Finance Agency (“FHFA”) as the successor to OFHEO and provided the
FHFA with expanded regulatory powers. HERA further defined the FHFA’s powers to
place Fannie Mae into conservatorship and authorized Fannie Mae to be placed into
receivership under certain statutorily-defined circumstances.
6
FHFA Places Fannie Mae in Conservatorship
48. On September 7, 2008, Lockhart announced that the FHFA had placed
Fannie Mae in conservatorship.
process designed to stabilize a troubled institution with the objective of returning
[Fannie Mae] to normal business operations.” The FHFA pledged to act as the
Company’s conservator until it was stabilized.
49. Under HERA, the FHFA’s powers as Conservator are limited to only those
“necessary to put the [Company] in a sound and solvent condition” and those that
Lockhart described conservatorship as “a statutory 7
! Lockhart would later become Director of the FHFA. 6
! The actual imposition of the conservatorship occurred on September 6, 2008. 7
13!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 14 of 36
“preserve and conserve the assets and property of the [Company].” 12 U.S.C. § 4617(b)
(2)(D). Furthermore, the FHFA, acting in its capacity as Conservator to Fannie Mae,
may “perform all functions of the [Company] in the name of the [Company]” only to the
extent they are “consistent with [its] appointment as conservator.” 12 U.S.C. § 4617(b)
(2)(B)(iii).
50. Lockhart announced that “in order to conserve over $2 billion in capital
every year, the common and preferred stock dividends will be eliminated, but the
common and all preferred stocks will continue to remain outstanding. Subordinated
debt interest and principal payments will continue to be made.” However, the
conservatorship did not expropriate any of the outstanding preferred or common stock
in the Company, and the terms of the Company’s stock were not formally modified.
51. Lockhart’s announcement envisioned that the Company would eventually
be returned to profitability, and the conservatorship would be lifted. He made clear that
the conservatorship would be run with an eye toward attracting additional private
investment to the Company, noting that “some of the key regulations will be minimum
capital standards, prudential safety and soundness standards and portfolio limits.”
According to Lockhart, the purpose of the new regulations was “so that any new investor
will understand the investment proposition.”
52. HERA also authorized Treasury to strengthen Fannie Mae’s balance sheet
by purchasing its securities within set time limits and consistent with certain statutory
requirements. Congress authorized Treasury to “purchase any obligations and other
securities issued by the [Company] … on such terms and conditions as the Secretary
may determine and in such amounts as the Secretary may determine” during the time
!14
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 15 of 36
period from HERA’s enactment in 2008 through December 31, 2009. 12 U.S.C. §§
1455(l)(1)(A), 1719(g)(1)(A). Before exercising that authority, HERA required the
Treasury Secretary to determine that purchasing Fannie Mae’s securities was “necessary
to … provide stability to the financial markets; prevent disruptions in the availability of
mortgage finance; and protect the taxpayer.” 12 U.S.C. §§ 1455(l)(1)(B), 1719(g)(1)(B).
53. Pursuant to this temporary authority, Treasury entered into a Preferred
Stock Purchase Agreement (“PSPA”) with the Company under which the Government
would receive a newly-issued series of preferred stock that was senior in priority to all
other Fannie Mae stock (“Government Preferred Stock”). Treasury Secretary Henry
Paulson (“Paulson”) announced, “With this agreement, Treasury receives senior
preferred equity shares and warrants that protect taxpayers. Additionally, under the
terms of the agreement, common and preferred shareholders bear losses ahead of the
new government preferred shares.”
54. In exchange, Fannie Mae was permitted to draw up to $100 billion from
Treasury.
billion plus the sum of all draws by the Company against Treasury’s funding
commitment and is entitled to a cumulative annual dividend equal to ten percent of the
outstanding Liquidation Preference. The PSPA also grants Treasury warrants to
purchase up to 79.9% of the Company’s common stock at a nominal price.
55. According to a Treasury fact sheet, the agreement “provides significant
protections for the taxpayer, in the form of senior preferred stock with a liquidation
! In the First Amendment to the PSPA, Treasury and the FHFA agreed to expand this funding 8
commitment to $200 billion in May 2009. In the Second Amendment to the PSPA, on December 24,
2009, Treasury and the FHFA agreed to a funding commitment that would be sufficient to enable the
Company to satisfy its capitalization requirements for 2010, 2011, and 2012 and to a funding commitment
in subsequent years up to a limit determined by an agreed-upon formula.
The Government Preferred Stock had a Liquidation Preference equal to $1 8
15!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 16 of 36
preference, an upfront $1 billion issuance of senior preferred stock with a 10% coupon
from [Fannie Mae], quarterly dividend payments, warrants representing an ownership
stake of 79.9% of [Fannie Mae] going forward, and a quarterly fee starting in 2010.”
56. Fannie Mae’s agreement with Treasury expressly contemplated that the
Government Preferred Stock would be redeemed at some future date, the agreement
with Treasury would be terminated, and the Company would return to full private
financing. According to Fannie Mae’s Form 8-K, filed with the SEC on September 11,
2008, “If after termination of the [Treasury Department] Commitment, Fannie Mae
pays down the liquidation preference of each outstanding share of Senior Preferred
Stock in full, the shares will be deemed to have been redeemed as of the payment date.”
57. Under the direction of the FHFA, the Company expected to incur
substantial loan losses in the years after being placed in conservatorship. Therefore, the
Company booked substantial reserves, recorded anticipated, unrealized loan losses, and
under applicable accounting standards, eliminated the value of non-cash deferred tax
assets from its balance sheet. These impairments required the Company to draw
increasing amounts against Treasury’s funding commitment.
58. As of August 17, 2012, prior to the Third Amendment, the total
outstanding Liquidation Preference on the Government Preferred Stock was $117.1
billion.
Fannie Mae Returns to Profitability
59. In 2012, as the housing market and the broader economy began to recover,
Fannie Mae returned to profitability again. After three years in conservatorship, it
became clear that the Company’s financial position was not as bad as had been feared.
!16
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 17 of 36
The Company’s actual realized losses on its mortgages were far less than had been
anticipated, and the assets that the Company had initially written down were worth
more than was reflected on the Company’s balance sheet.
60. On May 9, 2012, Fannie Mae filed its Form 10-Q with the SEC for the first
quarter of 2012. It disclosed the Company’s first quarterly profit since the imposition of
the conservatorship: a net quarterly income of $2.7 billion and a positive net worth of
$268 million (after its payment to Treasury of $2.8 billion in dividends). The Company
also announced that as a result of its positive net worth, it would not request a draw
from Treasury under the PSPA for the quarter.
61. At the closing of the second quarter of 2012, the Company announced that
it expected to be profitable for the foreseeable future. As a result, the Company would be
able to remove the valuation allowance against its deferred tax assets—worth
approximately $100 billion—in future years.
62. After having been placed in conservatorship, Fannie Mae had declared
massive non-cash losses, including write-downs of the value of tax assets and loss
reserves. As of December 31, 2008, Fannie Mae had established combined loss reserves
of $24.8 billion and written down tens of billions more in deferred tax assets. Yet by the
close of the first quarter of 2013, it had become clear that these non-cash losses were
substantially overstated. The Company, as part of its earnings for that quarter, released
$50.6 billion in deferred tax assets and loss reserves, and the Company is expected to
release tens of billions more from these accounting reversals next year.
63. In 2012 and 2013, Fannie Mae’s profits grew handsomely. The Company
reported quarterly net income of $2.7 billion for the first quarter of 2012, $5.1 billion for
17!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 18 of 36
the second quarter of 2012, $1.8 billion for the third quarter of 2012, $7.6 billion for the
fourth quarter of 2012, $58.7 billion for the first quarter of 2013,
second quarter of 2013, and $8.7 billion for the third quarter of 2013. Since the start of
2012 through the present, Fannie Mae has reported total net income of $94.7 billion.
64. After nearly two years of profitability, Fannie Mae’s balance sheet shows
that the Company, absent the Net Worth Sweep, would soon be able to redeem all
outstanding Government Preferred Stock pursuant to the terms of the the pre-Third
Amendment PSPA. This redemption would enable the Company to continue as a
financially solvent, viable, and valuable entity. Absent the Net Worth Sweep, the
Company’s rapidly growing profitability and net worth would provide a roadmap to exit
from the Conservatorship and a return to fully private ownership and operation.
$10.1 billion for the 9
Treasury and FHFA Execute the Third Amendment
65. On August 17, 2012, the Company’s optimistic, favorable outlook abruptly
ended with the announcement by the Government that it was unilaterally amending the
terms of its agreements with Fannie Mae, effective January 1, 2013. The change was
devastating. Instead of taking steps to aid in Fannie Mae’s return to profitability and exit
from conservatorship, Treasury and the FHFA together entered into the Third
Amendment to the PSPA. The Third Amendment ensured that Treasury—and not
Fannie Mae—would reap the entire benefit of Fannie Mae’s newfound profitability. As
! Fannie Mae’s extraordinary first quarter of 2013 reflected a $50.6 billion release of the valuation 9
allowance on the Company deferred tax assets, as discussed supra. According to the Company’s May 9,
2013 press release, these accounting adjustments were due to “mprovement in Fannie Mae’s financial
results, the strong credit profile of the company’s new book of business, and other factors.” Without these
adjustments, the Company’s pre-tax income for the first quarter of 2013 was $8.1 billion.
18!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 19 of 36
explained infra, Treasury has not only admitted this was the purpose and effect of the
Third Amendment, it expressed pride in its self-serving action.
66. Under the terms of the Third Amendment, rather than paying Treasury a
10% annual dividend on its Government Preferred Stock, Fannie Mae would now be
required to pay every dollar of its entire quarterly net worth, above a nominal,
temporary capital reserve, to Treasury as a dividend.
change, the Treasury Department summarized the new policy as a “Full Income Sweep
of All Future Fannie Mae … Earnings to Benefit Taxpayers.” In Treasury’s own words,
the Government would now take “a quarterly sweep of every dollar of profit that [Fannie
Mae] earns going forward.”
67. Any increase in the net worth of Fannie Mae flowing from net income or
other comprehensive income will automatically be swept to Treasury in its entirety, no
matter how large that increase in net worth is or how much it exceeds the 10% dividend
that Fannie Mae was obligated to pay pursuant to the pre-Third Amendment PSPA.
Furthermore, this new net-worth dividend must be paid to Treasury in cash, even
though the net worth of the Company may include non-cash assets, e.g., the deferred tax
assets. As a result, Fannie Mae has had to sell non-liquid assets or issue additional debt
10
In a press release announcing the 11
12
! See Press Release, Treasury, Treasury Department Announces Further Steps To Expedite Wind Down 10
Of Fannie Mae And Freddie Mac (Aug. 17, 2012), available at http://www.treasury.gov/press-center/
press-releases/Pages/tg1684.aspx.
! The capital reserve amount starts at $3 billion and steadily decreases by $600 million each year until it 11
is eliminated on January 1, 2018. Under the Net Worth Sweep, the Company’s net worth is defined as the
amount by which its total assets (excluding Treasury’s funding commitment and any unfunded amounts
related to the commitment) exceed its total liabilities (excluding any obligation in respect of capital stock),
as reflected on the Company’s balance sheet with generally accepted accounting principles.
! See Press Release, Treasury, Treasury Department Announces Further Steps To Expedite Wind Down 12
Of Fannie Mae And Freddie Mac (Aug. 17, 2012), available at http://www.treasury.gov/press-center/
press- releases/Pages/tg1684.aspx.
!19
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 20 of 36
to pay the net-worth dividend. This requirement has prevented the Company from
maximizing the value of its assets.
68. The Net Worth Sweep will also permanently prevent Fannie Mae from
accumulating any capital, redeeming the Government Preferred Stock, investing in its
business, or retaining any profits. And since the Net Worth Sweep, under Treasury’s
new rules, applies to all new net worth in perpetuity, Fannie Mae will never be able to
do any of these things. Essentially, Treasury and the FHFA have forever converted
Fannie Mae’s entire net worth into an unlimited Government slush fund. So long as
Fannie Mae remains in operation, all of its net worth will be transferred to Treasury, but
the outstanding Liquidation Preference will always remain at $117.1 billion. Under the
Net Worth Sweep, not a single dollar of Fannie Mae’s value can be used for anything
except to pay the Government, and even those payments cannot be counted against the
Government’s outstanding Liquidation Preference.
69. The Government’s purpose in imposing the Net Worth Sweep was
remarkably transparent. Treasury unabashedly stated that one of the objectives for the
Net Worth Sweep was “[m]aking sure that every dollar of earnings that Fannie Mae …
generates[s] will be used to benefit taxpayers for their investment in those firms.”
other words, the purpose was not to put the Company on sound financial footing or
conserve its assets—but rather to expropriate all of the Company’s assets solely to
benefit taxpayers.
In 13
! See Press Release, Treasury, Treasury Department Announces Further Steps To Expedite Wind Down 13
Of Fannie Mae And Freddie Mac (Aug. 17, 2012), available at http://www.treasury.gov/press-center/
press-releases/Pages/tg1684.aspx.
!20
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 21 of 36
70. Another justification for the Net Worth Sweep was to wind down Fannie
Mae as a private company. Treasury explained that the Net Worth Sweep was designed
to fulfill “the commitment made in the Administration’s 2011 White Paper that the GSEs
will be wound down and will not be allowed to retain profits, rebuild capital, and return
to the market in their prior form.” In another press release, Treasury noted that the Net
Worth Sweep would “help expedite the wind down of Fannie Mae” and “support the
continued flow of mortgage credit during a responsible transition to a reformed Housing
market.”
71. As Fortune Magazine’s Term Sheet blog explained:
Why did the Treasury enact the so-called Third Amendment that so
radically altered the preferred-stock agreement? By mid-2012, Fannie and
Freddie were beginning to generate what would become gigantic earnings
as the housing market rebounded. If the original agreement remained in
place, the GSEs would build far more than $100 billion in retained
earnings, and hence fresh capital, in 2013 alone. That would exert pressure
for Congress to allow Fannie and Freddie to pay back the government in
full, and reemerge as private players. [Treasury Secretary] Timothy
Geithner was strongly opposed to the rebirth of the old Fannie and
Freddie. The “sweep clause” that grabbed the entire windfall in profits was
specifically designed to ensure that Fannie and Freddie remained wards of
the state that would eventually be liquidated.
72. Indeed, in remarks in Phoenix, AZ on August 6, 2013, President Barack
Obama (“President Obama”) announced that his Administration would follow through
on its promises to wind down Fannie Mae. President Obama explained, “So the good
news is, right now there’s a bipartisan group of senators working to end Fannie and
Freddie as we know them. And I support these kinds of reform efforts.”
14
! Shawn Tully, What’s Behind Perry Capital’s Fannie and Freddie Gambit, CNN MONEY: A SERVICE OF 14
CNN, FORTUNE, AND MONEY, Jul. 8, 2013, available at http://finance.fortune.cnn.com/2013/07/08/
whats-behind-perry-capitals-fannie-freddie-gambit/.
!21
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 22 of 36
73. The purposes of the Third Amendment—to enrich the Treasury and
prepare to wind down Fannie Mae as a private company—were directly at odds with the
statutory duties and powers of the FHFA when it acts as Conservator to the Company.
Under HERA, the FHFA’s powers as Conservator are limited to only those “necessary to
put the [Company] in a sound and solvent condition” and those that “preserve and
conserve the assets and property of the [Company].” 12 U.S.C. § 4617(b)(2)(D).
Furthermore, the FHFA, acting in its capacity as Conservator to Fannie Mae, may
“perform all functions of the [Company] in the name of the [Company]” only to the
extent they are “consistent with [its] appointment as conservator.” 12 U.S.C. § 4617(b)
(2)(B)(iii).
74. The Third Amendment, however, was not necessary to put the company in
a “sound and solvent condition” or “preserve and conserve the assets and property” of
the Company. At the time the Third Amendment was agreed to, Fannie Mae was already
profitable and had announced that it expected to be profitable for the foreseeable future.
Instead of preserving and conserving the Company’s property, the Third Amendment
squandered that property by allowing Treasury to expropriate it.
75. By agreeing to the Third Amendment, the FHFA took actions that fell
outside the scope of its statutory authority when acting as Conservator to Fannie Mae.
Therefore, when Fannie Mae signed the Third Amendment, it was not—and could not
have been—acting in it capacity as Conservator to Fannie Mae. Instead, the FHFA was
acting as a Government agent when it signed the Third Amendment.
76. The dividends that are being paid to Treasury pursuant to the Third
Amendment have resulted in enormous payments to the Government—and will
!22
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 23 of 36
continue to do so. In 2012, Fannie Mae earned profits of approximately $17.2 billion,
and in the first three quarters of 2013, the Company earned profits of approximately
$77.5 billion. This includes approximately $50 billion in recaptured tax assets the
Company had written off in prior years, and Fannie Mae is expected to recognize tens of
billions more in income from deferred tax benefits in the near future. Since the
imposition of the Net Worth Sweep, Fannie Mae will have paid the Government an
additional $69.4 billion over and above what the Company was obligated to pay in
dividends under the pre-Third Amendment PSPA.
77. While these payments from Fannie Mae to Treasury were enormous, they
were not unexpected. According to a report issued by the FHFA’s Inspector General
(“IG”), the IG noted that the Net Worth Sweep could result in “an extraordinary
payment to Treasury.”
ceiling crisis in 2013. According to a report published by Politico, “A Treasury
Department official confirmed that the funds returned by [Fannie Mae] will be
deposited into the general fund and will be factored into how long the department can
continue to pay the government’s bills before running up against the debt ceiling.”
Politico further explained that according to the Bipartisan Policy Center, Fannie Mae’s
nearly $60 billion dollar dividend payment from the first quarter of 2013 “would likely
push back the date when the government will breach the debt ceiling until October, if it
is not raised before then.”
These payments are so large that they even affected the debt- 15
16
! See FHFA Office of Inspector General, Analysis of the 2012 Amendments to the Government Stock 15
Purchase Agreements, at 15 (Mar. 20, 2013).
! See Jon Prior, Fannie Mae's Big Payoff: $59B Sent to Feds, POLITICO, May 9, 2013, available at http:// 16
www.politico.com/story/2013/05/fannie-mae-to-send-treasury-big-payday-91128.html.
23!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 24 of 36
78. Pursuant to the Third Amendment, the Government will likely recoup
every dollar of the $117.1 billion it infused into Fannie Mae, with interest, by early 2014.
And over the next decade, the Government will collect tens of billions of additional
dollars in profits from Fannie Mae.
The Net Worth Sweep Is an Unlawful Taking of Fannie
Mae’s Private Property Without Just Compensation
79. Before the imposition of the conservatorship, Fannie Mae operated as a
private company, which secured capital from private investors and was traded on a
public stock exchange.
80. Under HERA, the FHFA’s limited role as Conservator was to operate
Fannie Mae so as to render it “sound and solvent” and to “conserve [its] assets and
property” with the goal of returning the Company to financial health. But instead of
attempting to rehabilitate Fannie Mae in good faith, the FHFA exceeded its statutory
authority as Conservator and, together with Treasury, raided the Company’s assets for
use by the Government.
81. By unilaterally imposing the Third Amendment, the Government required
Fannie Mae to provide the United States with “every dollar of earnings” from the
Company in perpetuity. It entirely deprives Fannie Mae of all of its reasonable value for
as long as the Company remains in business.
82. For all intents and purposes, the Government’s Net Worth Sweep is
indistinguishable from simply “taking” the Company outright. By taking “every dollar of
earnings” of Fannie Mae in perpetuity, the Government has effectively nationalized the
Company, albeit without the attendant stigma of such a brazen act. Were the
!24
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 25 of 36
Government to simply “take” a private company for public use, the Fifth Amendment
would mandate the payment of “just compensation.” Likewise, when the effect of
Government action is the total deprivation of all reasonable economic value of the
property, a taking also exists, and “just compensation” must be paid.
83. As a direct result of the Government’s imposition of the Third
Amendment, Fannie Mae has no reasonable economic value. By the Third Amendment’s
express terms, Fannie Mae cannot have net worth. It cannot accumulate any capital,
invest in its business, or retain profits. And since the Net Worth Sweep applies now and
forever, Fannie Mae’s predicament is permanent; it will never have any reasonable
economic value.
84. Additionally, by executing the Net Worth Sweep, the Government’s actions
had the effect of permanently depriving the Company of all economic value, defeated the
reasonable, investment-backed expectations of the Company under the original PSPA,
and unilaterally abrogated the Company’s rights under the original PSPA.
85. Fannie Mae’s economic value was taken, not to make the Company “sound
and solvent” or “conserve [its] assets and property,” but rather for the public use of the
Government. As Treasury has admitted on numerous occasions, its plan is to unwind
the Company and maximize its return not for the Company but for the Government.
And it has generated massive new revenues for that purpose. By December 31, 2013,
Fannie Mae will have paid $113.9 billion in dividends to taxpayers, and it is on track to
transfer tens, if not hundreds, of billions more. Fannie Mae’s website, now operated by
the Government, even boasts of its enormous payments to taxpayers in a banner
!25
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 26 of 36
headline on its homepage.
note to clients, “Washington could quickly get addicted to the revenue from Fannie and
Freddie.”
86. While the Government has collected over a hundred billion dollars in
dividend payments from Fannie Mae—and is on track to collect billions more—the
Company has never been provided with just compensation for the loss of its entire
economic value. Indeed, it has not been provided with any compensation at all.
Therefore, the Government’s Net Worth Sweep constitutes an unlawful taking without
just compensation in violation of the Fifth Amendment to the U.S. Constitution.
As Guggenheim Partners analyst Jaret Seiberg wrote in a 17
DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS
Demand on Fannie Mae’s Board Would Be Futile and Is Excused
87. Demand on Fannie Mae’s Board to institute this litigation would be futile
and is excused. Because the Conservator has assumed all of the powers of the Board,
there are no independent directors who could consider a pre-suit demand.
88. As reported in the Company’s public filings, on September 6, 2008, at the
request of the Secretary of the Treasury, the Chairman of the Board of Governors of the
Federal Reserve, and the Director of FHFA, Fannie Mae’s Board adopted a resolution
consenting to the Company’s placement into conservatorship. The Director of FHFA
then appointed the FHFA as Fannie Mae’s Conservator on September 6, 2008, in
accordance with the Regulatory Reform Act and the Federal Housing Enterprises
Financial Safety and Soundness Act.
! See Fannie Mae website, Fannie Mae reports 7th consecutive quarterly profit and will pay $114 17
billion* in dividends to taxpayers, http://www.fanniemae.com (Nov. 18., 2013). In a video posted on the
Company’s web site, the FHFA enthusiastically declares that the Company will “be providing value to
taxpayers for years to come.”
!26
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 27 of 36
89. As confirmed by the Company’s public filings, upon its appointment, the
FHFA “immediately succeeded to all rights, titles, powers and privileges of Fannie Mae,
and of any … director of Fannie Mae with respect to Fannie Mae and its assets, and
succeeded to the title to all books, records and assets held by any other legal custodian
or third party [of Fannie Mae]. The conservator has the power to take over [Fannie
Mae’s] assets and to operate [Fannie Mae’s] business … and to conduct all business of
the company.” The FHFA has overall management authority over Fannie Mae’s business
when it acts in accordance with its statutory authority as Conservator.
90. In announcing the appointment of FHFA as Conservator of Fannie Mae,
Director Lockhart stated on September 7, 2008 that “FHFA will assume the power of the
Board and management.” Accordingly, Fannie Mae’s Board no longer has the power or
duty to manage, direct, or oversee the business and affairs of the Company, including
whether to bring suit for the taking of the Company’s property by the Government.
91. Even if Fannie Mae’s directors did have the power to initiate this action,
which they clearly do not, Fannie Mae’s directors, and each of them individually, lack
the necessary independence to do so. Fannie Mae’s directors were appointed by, and
thereby are beholden to and controlled by, the FHFA. As the Company reported in its
Form 8-K filing with the SEC on December 24, 2008, the FHFA reconstituted Fannie
Mae’s Board by handpicking and appointing Fannie Mae’s directors. The FHFA also
directs the function and authorities of the Board.
92. Fannie Mae’s Code of Conduct and Conflicts of Interest Policy for
Members of the Board (“Code of Conduct”) further confirms that Fannie Mae’s directors
!27
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 28 of 36
are entirely beholden to the FHFA and lack the independence necessary to consider a
pre-suit demand. Fannie Mae’s Code of Conduct states, in relevant part:
For as long as the Corporation remains under the conservatorship, the
directors of the Corporation shall serve on behalf of the Conservator and
shall be required to exercise authority as directed by and with the
approval, where required, of the Conservator and shall have no duties to
any person or entity except to the Conservator. Accordingly, the directors
are not obligated to consider the interests of the Corporation, the holders
of the Corporation’s equity or debt securities or the holders of the
Corporation’s mortgage-backed securities, unless specifically directed to
do so by the Conservator.
93. Both Fannie Mae’s public filings with the SEC and its by-laws confirm that
the Board has no independent power separate from the FHFA. According to Fannie
Mae’s 2011 and 2012 10-K statements, “Our directors serve on behalf of the conservator
and exercise authority as directed by and with the approval, where required, of the
conservator. Our directors do not have any duties to any person or entity except the
conservator. Accordingly, our directors are not obligated to consider the interests of the
company … unless specifically directed to do so by the conservator.”
94. Additionally, the 10-Ks acknowledge that the FHFA has “directed the
Board to consult with and obtain the approval of the conservator” before taking action in
specific areas, including: actions involving capital stock; dividends; the Stock Purchase
Agreement; increases in risk limits; material changes in accounting policy and
reasonably foreseeable material increases in operational risk; matters that relate to the
conservatorship; and any action that in the reasonable business judgment of the Board
at the time that is likely to cause significant reputational risk.
95. Likewise, the Company’s by-laws confirm, “The Board serves on behalf of
the conservator and shall exercise their authority as directed by the conservator.”
28!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 29 of 36
96. Since the Board is both completely controlled by the FHFA and lacks the
authority to take action against the Government, demand on the Board would be futile
and is excused.
Demand on the FHFA Would Be Futile and Is Excused
97. To the extent that demand would, or should, be made on the FHFA itself,
such demand also would be futile because the FHFA has manifest, disabling, and
irreconcilable conflicts of interest with respect to this action and lacks the independence
necessary to consider a pre-suit demand.
98. It would be impractical, if not absurd, for the FHFA, an agency of the
United States government, to sue the United States government, alleging claims based
on both the Treasury Department’s—and its own—actions. As a party to the Third
Amendment, the FHFA’s conduct is at the heart of this action, which challenges the very
unconstitutional actions in which the FHFA participated. As an agency of the federal
government, the FHFA is interested in and benefits from the Third Amendment and
cannot reasonably be expected to initiate litigation for the 5th Amendment takings
claims alleged herein.
99. Moreover, any takings action initiated by the FHFA against the United
States would necessarily implicate not only itself but also the U.S. Department of
Treasury. Yet, as explained infra, Treasury exercises de facto control over the actions of
the FHFA, further exposing the FHFA’s manifest conflict of interest.
100. The Treasury Department is a closely-related sister federal agency that has
acted in concert with the FHFA throughout the conservatorship. Together, the FHFA
and Treasury placed Fannie Mae in conservatorship; established the Preferred Stock
!29
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 30 of 36
Purchase Agreement between Treasury and Fannie Mae and then amended the PSPA
three times, including the Third Amendment at issue in this Action; established a new
secured lending credit facility available to Fannie Mae; and initiated a new program to
purchase the mortgage-backed securities of Fannie Mae. Furthermore, the Secretary of
the Treasury occupies one of the four reserved seats on the Federal Housing Oversight
Board (“FHOB”), which is statutorily required to “advise the Director [of FHFA] with
respect to overall strategies and policies in carrying out the duties of the Director under
[HERA].” 12 U.S.C. § 4513a.
101. It is the Treasury Department’s actions, together with the FHFA, which
comprise the heart of this action. The Net Worth Sweep was instituted through an
agreement between the FHFA and Treasury (the “Third Amendment”), and both the
FHFA and Treasury directly reap the benefits of this incestuous relationship to the
detriment of the Company. These close and disabling ties between the FHFA and
Treasury—and the FHFA’s own actions—preclude the FHFA from exercising
independent judgment. In fact, without the close and disabling ties between Treasury
and the FHFA, the unlawful conduct complained of herein may have never occurred in
the first instance.
102. The FHFA is statutorily required to operate Fannie Mae so as to render it
“sound and solvent” and to “conserve [its] assets and property.” Yet despite that
mandate, the FHFA exceeded the scope of its statutory authority as Conservator under
HERA and entered into a self-dealing pact with Treasury to provide the United States
with “every dollar of earnings” from the Company in perpetuity. These two federal
government agencies did not act separately in agreeing to the Third Amendment.
30!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 31 of 36
Instead, the FHFA’s actions were motivated by its conflicted relationship with Treasury.
As a practical matter, any entity that has so capitulated to Treasury that it exceeds its
statutory authority as Conservator and permits Treasury to execute a “Net Worth
Sweep” of all of Fannie Mae’s earnings in perpetuity cannot reasonably be expected to
sue itself and allege its own conduct was unconstitutional.
103. In signing the Third Amendment, the FHFA was not managing Fannie
Mae for the benefit of the Company but rather for the benefit of the Government. On
March 4, 2013, FHFA Acting Director DeMarco delivered remarks to the National
Association for Business Economics’s annual policy conference, entitled “FHFA’s
Conservatorship Principles for 2013.” DeMarco explained, “FHFA has reported on
numerous occasions that, with taxpayers providing capital supporting [Fannie Mae’s]
operations, this ‘preserve and conserve’ mandate directs FHFA to minimize losses on
behalf of taxpayers.” Instead of “preserving and conserving” the assets of Fannie Mae for
the Company, as mandated by statute, DeMarco unmasked the FHFA’s—and the
Treasury Department’s—real directive: to “preserve and conserve” the private assets of
Fannie Mae for public use by the Government.
104. Under these circumstances, the FHFA, as a federal government agency at
the heart of the unlawful conduct, cannot be expected to pursue a lawsuit against the
United States, necessarily based on both its own actions and those of the Treasury
Department with which it conspired. As a result of these manifest, disabling, and
irreconcilable conflicts of interest, the FHFA is incapable of pursuing a derivative claim
for an unlawful taking on behalf of the Company against the United States. Therefore, to
31!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 32 of 36
the extent demand would, or should, be made on the FHFA, such demand would be
futile and is excused.
105. Additionally, demand would also be futile and is excused, because the
Third Amendment served no legitimate business purpose of Fannie Mae. Instead, the
Third Amendment was solely designed to benefit the Government and was plainly
counter to the interests of the Company.
CLAIMS FOR RELIEF
Unlawful Taking Without Just Compensation
Under the Fifth Amendment to U.S. Constitution
106. Plaintiffs incorporate by reference and reallege each and every allegation
of the preceding paragraphs, as though fully set forth herein.
107. The Fifth Amendment to the United States Constitution provides that no
person shall “be deprived of life liberty, or property, without due process of law; nor
shall private property be taken for public use, without just compensation.”
108. By imposing the Third Amendment , which in Treasury’s own words was
designed to take “every dollar of earnings [Fannie Mae] generates … to benefit
taxpayers,” the Government took all reasonable value of the Company for public use.
109. When the Government takes private property for a public use or a public
purpose, the Fifth Amendment requires the payment of “just compensation.”
110. The Government did not pay—and under the Third Amendment will not
pay—just compensation to Fannie Mae for its taking of the entire net worth of the
Company. As a result, Fannie Mae has been injured and is entitled to just compensation
32!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 33 of 36
in a sum equal to the amounts taken by the Government through its unconstitutional
imposition of the Third Amendment.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of Fannie Mae, demand judgment against the
United States of America as follows:
A. Finding that the United States has unlawfully taken the private property of
Fannie Mae for public use without just compensation in violation of the
Takings Clause of the Fifth Amendment to the U.S. Constitution;
B. Determining and awarding Fannie Mae just compensation for the
Government’s taking of its property;
C. Awarding Plaintiffs the costs and disbursements of the action, including
reasonable attorneys’ fees, experts’ fees, costs, and other expenses; and
D. Granting such other and further relief as the Court deems just and proper.
!33
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 34 of 36
DATED: December 2, 2013 SCHUBERT JONCKHEER & KOLBE LLP
BY: /s/ Robert C. Schubert
R OBERT C. SCHUBERT
Robert C. Schubert
Attorney of Record
rschubert@schubertlawfirm.com
Three Embarcadero Ctr Ste 1650
San Francisco, CA 94111-4018
Ph: 415-788-4220
Fx: 415-788-0161
OF COUNSEL: SCHUBERT JONCKHEER & KOLBE LLP
Noah M. Schubert
nschubert@schubertlawfirm.com
Miranda P. Kolbe
mkolbe@schubertlawfirm.com
Three Embarcadero Ctr Ste 1650
San Francisco, CA 94111-4018
Ph: 415-788-4220
Fx: 415-788-0161
SHAPIRO HABER & URMY LLP
Edward F. Haber
ehaber@shulaw.com
53 State Street
Boston, MA 02109
Ph: 617-439-3939
Fx: 617-439-0134
Attorneys for Plaintiffs
34!
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 35 of 36
V ERIFICATION
I, Bryndon Fisher, hereby verify and declare under penalty of perjury that I have
reviewed the First Amended Consolidated Derivative Complaint, know the contents
thereof, and authorize its filing. The foregoing is true and correct to the best of my
knowledge, information, and belief, based on investigation of counsel. I have personal
knowledge of the facts stated in paragraph 22 ofthe Complaint, which are true and
correct.
DATED: 1/P-.?/;?o/3
I, Bruce Reid, hereby verify and declare under penalty of peIjury that I have reviewed
the First Amended Consolidated Derivative Complaint, know the contents thereof, and
authorize its filing. The foregoing is true and correct to the best of my knowledge,
information, and belief, based on investigation of counsel. I have personal knowledge of
the facts stated in paragraph 23 ofthe Complaint, which are true and correct.
BRUCE REID
Case 1:13-cv-00608-MMS Document 17 Filed 12/02/13 Page 36 of 36
VERIFICATION
I, Erick Shipmon, hereby verify and declare under penalty of perjury that I have
reviewed the First Amended Consolidated Derivative Complaint, know the contents
thereof, and authorize its filing. The foregoing is true and correct to the best of my
knowledge, information, and belief, based on investigation of counsel. I have personal
knowledge of the facts stated in paragraph 24 of the Complaint, which are true and
correct.
DATED:
ERICK SHIPMON
any idea why the jump up in pps?
This comes from the Congressional Research Service - August 13, 2013
this part is towards the bottom of the report
What Was Fannie Mae’s and Freddie Mac’s Financial Position?
In placing the GSEs under conservatorship, their new regulator, FHFA, said that they needed assistance to survive. FHFA reported that changes in the economy and the GSEs’ slow recovery from their earlier accounting and financial problems reduced their financial strength.
The Office of Federal Housing Enterprise Oversight (OFHEO), which had been Fannie Mae’s and Freddie Mac’s safety and soundness regulator before July 30, 2008, repeatedly said that the GSEs had adequate capital. In other words, according to OFHEO, the GSEs had sufficient funds to survive their financial difficulties.
Because details of the GSEs’ portfolios and guarantees include confidential and proprietary information, it is difficult to reconcile the two different assessments of the GSEs’ financial position. In broad terms, the GSEs purchased slightly more than $169 billion of private label subprime MBSs in 2006 and 2007; they purchased slightly less than $58 billion of Alt-A MBSs in the same time period, out of combined total mortgage purchases of $1.677 trillion.57 At the end of 2007, the subprime and Alt-A MBSs represented 13.5% of the GSEs’ total assets.
Link:
http://www.fas.org/sgp/crs/misc/R42760.pdf
One can use some basic knowledge and understanding to see that 99% of the "wind down", "shutter", "eliminate", "do away with" banter from the politicians is pretty much just that...political banter and posturing.
Could they do it? Possibly...
The real question is WILL they do it.
In my personal opinion, right now the politicians and media are simply pandering to whom ever appears to have the most political clout....with the media going in any direction to stir up the most controversy.
Most of us that frequent this board know a good deal more of the truth than the average joe, which does bias us to an extent, but it also allows us to better understand the probabilities and most likely outcomes as this progresses.
As more and more people learn the true ramifications and difficulties in a "wind down" or "elimination" of FnF, we will see more and more people calling for "reform" of FnF. Change the procedures...more oversite...better regulation... and hopefully what I see as the most important aspect...accountability.
As some changes are implemented, re-evaluate, analyze data, remodel as data indicates...wash...rinse...repeat. Eventually they will have a sustainable working model (depending on who they are) that will benefit the taxpayer and current/future home buyers. And it will take YEARS no matter the direction they choose.
Why eliminate two entities that already have the expertise and infrastructure in place and start over, when an obvious and likely alternative is to rework what currently is in place to fix the boo boos. And we know the boo boos go FAR beyond FnF.
Personally, I think it's political suicide to attempt to steal away a publicly traded company from the share holders. I know they have tons of backing, and they have tons of money, but I believe as these lawsuits progress, more and more truth will come to light, and the general public will respond with votes.
Was FnF guilty of crashing the housing market...no...were they a part of it...yes...willing?...possibly...forced?...most probably.
We do know there were mandates back in the Clinton administration that dictated FnF would support questionable loan practices in the pursuit of the american dream of home ownership.
We also know unfortunately...at those executive levels...those people typically will go untouched and reap massive paydays and never have a worry as the average taxpayer does.
There are some powerful voices out there that hold both preferred and common shares of FnF, and they won't go down quietly.
excellent video from former fannie CFO
http://finance.yahoo.com/blogs/daily-ticker/fannie-mae-didn-t-cause-housing-crisis-free-150042887.html
an outstanding commentary
a bit long, but take note of what is said from 04:20 - 04:35 timeframe. The entire commentary makes one think we have a bunch of friggin idiots and thieves running the country.
These guys are some of the brightest and most well respected financial (and other areas of expertise) legal minds around.
http://www.restorefanniemae.us/richard_epstein
An Unconstitutional Bonanza November 11, 2013
by Richard A. Epstein (Peter and Kirsten Bedford Senior Fellow and member of hoover ip squared working group steering committee)
The government has seized billions of dollars from Fannie and Freddie’s private shareholders.
-----------------------------------------------------------------
Link: http://www.hoover.org/publications/defining-ideas/article/161456
In a previous column, Grand Theft Treasury, I highlighted the recent lawsuits (now numbering seventeen) brought against the United States in connection with its controversial conservatorship of two government-sponsored enterprises, The Federal National Mortgage Association (Fannie Mae) and The Federal Home Loan Mortgage Corporation (Freddie Mac).
The occasion for that story was the then-recent public announcement that about $59 billion had been paid to the United States Treasury as a “dividend” on the $188 billion in purchase money payments that Treasury had advanced to Fannie and Freddie pursuant to agreements that it had entered into with its conservator, the Federal Housing Finance Agency (FHFA). The two key agreements were the initial “Senior Preferred Stock Purchase Agreement” of September 26, 2008, and the Third Amendment to that agreement of August 17, 2012. (All the relevant documents can be found here).
http://www.fhfa.gov/Default.aspx?Page=364
This past week two events of note took place. First, the United States filed its much anticipated brief in Washington Federal v. United States, defending itself against charges that it had seized the wealth of the private shareholders of Fannie and Freddie. The second is that FHFA, on behalf of Fannie and Freddie, paid the Treasury another $39 billion in dividends on the original advances of about $188 billion. Combined with the earlier payments, the Treasury has now virtually recouped its huge original advance. The prospect of further and equally lucrative paydays promises to turn Treasury’s erstwhile “rescue operation” into an unparalleled bonanza for the government. The deal looks almost too good to be true. Indeed, a close examination of the government’s responsive brief reveals that it is.
The Original Deal
At root, the legal challenges to the government’s action rest on the one-sided terms of the original stock purchase agreement and especially the controversial Third Amendment. In September 2008, FHFA wrested control away from the Boards of Directors of Fannie and Freddie by installing itself as the conservator of both corporations, charged with managing all of their affairs. Armed with these extensive powers, FHFA promptly entered into a sweetheart deal with Treasury whereby Treasury purchased a new issue of senior preferred stock from Fannie and Freddie for about $188 billion, which carried with it a 10 percent dividend, and an option that allowed Treasury to acquire some 79.9 percent of the common stock for the nominal price of $0.00001 per share. That transaction drove down the prices of the common and (now junior) preferred. The 2012 Third Amendment replaced the previous 10 percent dividend with a “sweep” to Treasury of all the net profits of Fannie and Freddie, as of January 1, 2013.
The deal was made just as both companies were returning to profitability. As commonly expected, the revised agreement has proved wholly one-sided. Treasury has reaped over one hundred billion dollars and, through the profit sweep, has assured that Fannie and Freddie will never amass a single dime to enable the repurchase of the senior preferred stock. A conservatorship requires the conservator to act in the best interest of its beneficiaries—here the shareholders of Fannie and Freddie at the time the conservatorship was imposed. The original stock purchase agreement, and most emphatically the Third Amendment, which benefited only FHFA and Treasury, were signed in blatant violation of that basic duty. FHFA’s responsibility to the shareholders demands, at the very least, was that the Third Amendment be unraveled, and not exalted.
The Government’s Response
In speaking and writing about this issue (which I have done as a paid consultant for several hedge funds), I have often been asked how the government could defend itself in these dubious transactions that would be regarded as both intolerable and illegal if done by private parties. The government brief does not provide an acceptable answer to that question on either procedural or substantive grounds.
The Procedural Move.
The government’s initial move is to refer to a key provision of the conservatorship law that it reads as making it impossible for the shareholders to have their day in court. Thus under 12 U.S.C. § 4617(b)(2)(A), FHFA shall “as conservator or receiver, and by operation of law, immediately succeed to—(i) all rights, titles, powers, and privileges of the regulated entity, and of any stockholder, officer, or director of such regulated entity with respect to the regulated entity and the assets of the regulated entity.” According to the government, this provision silences the shareholders because all their rights and powers have been transferred to FHFA.
That extravagant claim makes sense only so long as the interests of FHFA are aligned with those of its shareholders. The obvious distress of many financial institutions means that something has gone amiss. It is therefore a legitimate legislative judgment to grant the new government officials the power to pursue all claims that the corporations and their shareholders could bring against outsiders.
In support of its position, the government cites a 2012 Circuit Court decision, Kellmer v. Raines, which held that only FHFA was in a position to sue the former officers and directors of Fannie and Freddie for the breach of their duties to the corporation. That court insisted that, as a general proposition, its sole job was to “read the statute,” from which it concluded that “all rights, titles powers, and privileges” meant just that.
Therefore, on the basis of Washington Mutual, the government now insists that individual shareholders cannot sue FHFA and Treasury either as owners of shares or “derivatively” (that is, not in their own right but on behalf of the corporation). Thus the government concludes that persons who claim that billions of their dollars have made it into the treasury lack “standing” to challenge the FHFA and Treasury in court on, it appears, any and all legal grounds.
Two responses are appropriate. First, it is an absurd literalism to read the statute as though it contains no implied and necessary exception for those cases in which shareholders claim that FHFA has acted in violation of the duty of loyalty to them. The general legal maxim is that no person shall be a judge in his own cause, which is just what the government does with its wooden reading of the statute. The judicial injunction to read the statute means to read it as a whole, so as to make sense of all its moving parts, not just some.
Second, read as the government would have it, the statute is flatly unconstitutional because it denies individuals and their property the protections afforded against the government by the Fifth Amendment to the Constitution, which says “No person shall . . . be deprived of life, liberty, or property, without due process of law.” This, at a minimum, gives them the right to a hearing before a neutral and impartial judge in cases that involve major disputes over the nature and validity of substantial property claims.
The canon of constitutional avoidance holds that all statutes should be construed to avoid any serious clash with the Constitution “unless such construction is plainly contrary to the intent of Congress.” The government’s interpretation of the statute flouts that rule; if adopted, it should lead to the statute’s invalidation to the extent that it bars shareholders from the courtroom door.
The Substantive Move. The government’s second response is that even if they are allowed into Court, the shareholders of Fannie and Freddie really have nothing to complain about because their property has not been taken. At one point, the government makes the weird claim that this action should be barred because the plaintiffs do not allege that “the Government has the citizen’s money in its pocket.” The technical reason for that claim is that Washington Mutual did not allege that the government had taken the money, but only that it had suffered a reduction in its shares’ value as a result of the government’s action.
Yet that perceived defect in pleading is easily remedied. The explicit purchase agreement took stock from the corporations in exchange for the infusion of cash. The taking comes from the fact that the value given to Fannie and Freddie was less than the value taken from the corporations. Phrased in this way, there are 100 billion reasons why money that belonged to the two corporations ended up in the pockets of the United States after the last two major sweeps.
The argument that these transactions count as takings is no more complex than the simple claim that the government forcibly takes the house of A, worth $100,000, for a mere $25,000. The forced purchase on unequal terms is a taking of $75,000, which should be enjoined unless the government ponies up the remaining $75,000. The situation does not change if the government plunks down that $25,000 in cash in exchange for a mortgage upon the property for $75,000, which it then empowers itself to collect by renting out the premises, keeping all the rents net of expenses for itself.
The Third Amendment to the Stock Purchase Agreement represents just this kind of one-sided transaction. Yet the government seeks to avoid this obvious implication by three specious arguments. First, it claims that there really was a mutually beneficial bargain here. After all, the Third Amendment was needed “because of a concern that the Enterprises, although solvent with Treasury’s assistance, would fail to generate enough revenue to fund the 10 percent dividend obligation.” Fat chance. Indeed, the one way to magnify the miniscule risk of default is to strip Fannie and Freddie of liquidity by the unilateral “dividend” payment made to the government. As a conservator, FHFA is supposed to defend shareholders, not fork over their money to Treasury.
Next, the government offers two more threadbare arguments for its position. The first is that the time is not “ripe” for a complete accounting because the books have not closed on the transaction. But the goal in this case is to stop the bloodletting before the patient is dead, not to let the government go on with its rigged scheme until that future day when it will solemnly pronounce that it is just too late to unravel this complex transaction.
Finally, the government claims that the shareholders of Fannie and Freddie have assumed the risk that they will be looted. After all, an extensive body of law, much of which comes out of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), takes the highly contentious line that all banks know that they cannot challenge government regulations because they have willingly entered into a highly regulated area. Consequently, they do not have the requisite “investment-backed expectations” that they will be free of government regulation.
But this lawsuit is not a case where the government has acted pursuant to its general powers to regulate thrift institutions. Those cases are worlds apart from the present for two reasons. First, the source of the shareholders’ disaffection here is the purchase agreement of the senior preferred stock, and not any form of general government regulation of banks that have otherwise failed. Second, those cases do not contain the obvious element of self-dealing which pervades the Third Amendment.
Notwithstanding the government’s efforts to sugarcoat the obvious, this deal remains one of the most lopsided and unfair transactions in the annals of United States history—which says a lot about the sad state of public law and finance today.
--------------------------------------------------------------------------------
Richard A. Epstein, Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, Laurence A. Tisch Professor of Law at New York University, and senior lecturer at the University of Chicago, researches and writes on a broad range of constitutional, economic, historical, and philosophical subjects. He has taught administrative law, antitrust law, communications law, constitutional law, corporate law, criminal law, employment discrimination law, environmental law, food and drug law, health law, labor law, Roman law, real estate development and finance, and individual and corporate taxation. His publications cover an equally broad range of topics. His most recent book, published in 2013, is The Classical Liberal Constitution: The Uncertain Quest for Limited Government (2013). He is a past editor of the Journal of Legal Studies (1981–91) and the Journal of Law and Economics (1991–2001
I wonder if this is finally the move towards 60
You may like Item 4 below from the sched 13D filing
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Pershing Square advises the accounts of PS, PS II, Pershing Square International, Ltd., a Cayman Islands exempted company (“Pershing Square International”) and Pershing Square Holdings, Ltd., a limited liability company incorporated in Guernsey (“PSH”) (collectively, PS, PS II, Pershing Square International and PSH, the “Pershing Square Funds”). Pershing Square purchased for the accounts of the Pershing Square Funds an aggregate of 115,569,796 shares of the common stock for total consideration (including brokerage commissions) of $264,981,966. The source of funding for such transactions was derived from the respective capital of the Pershing Square Funds.
--------------------------------------------------------------------------------
ITEM 4. PURPOSE OF TRANSACTION
The Reporting Persons believe that the Issuer’s common stock is undervalued and is an attractive investment.
In light of the proposed Fairholme transaction on behalf of certain holders of preferred stock of the Issuer which was reported in the financial press, the Reporting Persons have determined that they may engage in discussions with management, the board, other stockholders of the Issuer, representatives of the Federal government, and other relevant parties concerning the business, assets, capitalization, financial condition, operations, governance, management, strategy and future plans of the Issuer, which discussions may include proposing or considering one or more of the actions described in subsections (a) through (j) of Item 4 of Schedule 13D.
The Reporting Persons intend to review their investments in the Issuer on a continuing basis. Depending on various factors, including, without limitation, the Issuer’s financial position and strategic direction, actions taken by the board, price levels of shares of the common stock, other investment opportunities available to the Reporting Persons, concentration of positions in the portfolios managed by the Reporting Persons, market conditions and general economic and industry conditions, the Reporting Persons may take such actions with respect to their investments in the Issuer as they deem appropriate, including, without limitation, purchasing additional shares of the common stock or other financial instruments related to the Issuer or selling some or all of their beneficial or economic holdings, engaging in hedging or similar transactions with respect to the securities relating to the Issuer and/or otherwise changing their intention with respect to any and all matters referred to in Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a), (b)
Based upon the Issuer’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2013, there were 1,158,080,657 shares of the common stock outstanding as of September 30, 2013.
Based on the foregoing, the 115,569,796 shares of the common stock (the “Subject Shares”) beneficially owned by the Reporting Persons represent approximately 9.98% of the shares of the common stock issued and outstanding.
Pershing Square, as the investment adviser to the Pershing Square Funds, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares. As the general partner of Pershing Square, PS Management may be deemed to have the shared power to vote or to direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares. As the general partner of PS and PS II, Pershing Square GP may be deemed to have the shared power to vote or to direct the vote of (and the shared power to dispose or direct the disposition of) the 39,293,197 shares of the common stock held for the account of PS and the 820,847 shares of common stock held for the account of PS II. By virtue of William A. Ackman’s position as the Chief Executive Officer of Pershing Square and managing member of each of PS Management and Pershing Square GP, William A. Ackman may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares and, therefore, William A. Ackman may be deemed to be the beneficial owner of the Subject Shares.
The Reporting Persons are responsible for the completeness and accuracy of the information concerning the Reporting Persons contained herein.
As of the date hereof, none of the Reporting Persons own any shares of the common stock other than the Subject Shares covered in this Statement.
William Ackman / Pershing square purchases
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE - SC 13D (Filed: 15-11-2013)
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Exhibit 99.2
TRADING DATA
TOTAL - 115,569,796
Name
Trade Date
Buy/Sell No. of Shares / Quantity Unit Cost Strike Price Trade Amount
Security
Expiration Date
Pershing Square, L.P.
October 7, 2013 Buy 396,912 $ 1.54 N/A $ 611,165 Common Stock N/A
Pershing Square, L.P.
October 8, 2013 Buy 624,362 $ 1.61 N/A $ 1,005,223 Common Stock N/A
Pershing Square, L.P.
October 9, 2013 Buy 414,241 $ 1.57 N/A $ 649,820 Common Stock N/A
Pershing Square, L.P.
October 10, 2013 Buy 579,868 $ 1.60 N/A $ 927,731 Common Stock N/A
Pershing Square, L.P.
October 11, 2013 Buy 436,992 $ 1.62 N/A $ 708,539 Common Stock N/A
Pershing Square, L.P.
October 14, 2013 Buy 219,733 $ 1.62 N/A $ 355,704 Common Stock N/A
Pershing Square, L.P.
October 15, 2013 Buy 221,776 $ 1.63 N/A $ 362,559 Common Stock N/A
Pershing Square, L.P.
October 16, 2013 Buy 545,760 $ 1.60 N/A $ 875,181 Common Stock N/A
Pershing Square, L.P.
October 17, 2013 Buy 495,315 $ 1.55 N/A $ 770,017 Common Stock N/A
Pershing Square, L.P.
October 18, 2013 Buy 245,520 $ 1.53 N/A $ 376,603 Common Stock N/A
Pershing Square, L.P.
October 21, 2013 Buy 853,250 $ 1.62 N/A $ 1,379,449 Common Stock N/A
Pershing Square, L.P.
October 22, 2013 Buy 1,364,800 $ 1.73 N/A $ 2,364,516 Common Stock N/A
Pershing Square, L.P.
October 23, 2013 Buy 2,984,514 $ 2.01 N/A $ 6,009,916 Common Stock N/A
Pershing Square, L.P.
October 24, 2013 Buy 2,167,986 $ 2.14 N/A $ 4,631,902 Common Stock N/A
Pershing Square, L.P.
October 25, 2013 Buy 1,723,565 $ 2.10 N/A $ 3,618,108 Common Stock N/A
Pershing Square, L.P.
October 28, 2013 Buy 2,047,797 $ 2.35 N/A $ 4,817,238 Common Stock N/A
Pershing Square, L.P.
October 29, 2013 Buy 2,534,152 $ 2.38 N/A $ 6,036,857 Common Stock N/A
Pershing Square, L.P.
October 30, 2013 Buy 2,023,382 $ 2.31 N/A $ 4,672,191 Common Stock N/A
Pershing Square, L.P.
October 31, 2013 Buy 1,365,525 $ 2.27 N/A $ 3,095,645 Common Stock N/A
Pershing Square, L.P.
November 1, 2013 Buy 1,631,520 $ 2.41 N/A $ 3,937,837 Common Stock N/A
Pershing Square, L.P.
November 4, 2013 Buy 881,322 $ 2.38 N/A $ 2,100,014 Common Stock N/A
Pershing Square, L.P.
November 5, 2013 Buy 1,407,661 $ 2.34 N/A $ 3,298,291 Common Stock N/A
Pershing Square, L.P.
November 6, 2013 Buy 1,500,507 $ 2.27 N/A $ 3,407,952 Common Stock N/A
Pershing Square, L.P.
November 7, 2013 Buy 864,129 $ 2.38 N/A $ 2,059,565 Common Stock N/A
Pershing Square, L.P.
November 8, 2013 Buy 1,155,382 $ 2.35 N/A $ 2,713,530 Common Stock N/A
Pershing Square, L.P.
November 11, 2013 Buy 851,000 $ 2.35 N/A $ 2,001,127 Common Stock N/A
Pershing Square, L.P.
November 12, 2013 Buy 985,709 $ 2.40 N/A $ 2,368,659 Common Stock N/A
Pershing Square, L.P.
November 13, 2013 Buy 2,067,268 $ 2.53 N/A $ 5,227,294 Common Stock N/A
Pershing Square, L.P.
November 14, 2013 Buy 6,703,249 $ 2.94 N/A $ 19,693,527 Common Stock N/A
--------------------------------------------------------------------------------
Name
Trade Date
Buy/Sell No. of Shares / Quantity Unit Cost Strike Price Trade Amount
Security
Expiration Date
Pershing Square International, Ltd.
October 7, 2013 Buy 507,548 $ 1.54 N/A $ 781,522 Common Stock N/A
Pershing Square International, Ltd.
October 8, 2013 Buy 798,808 $ 1.61 N/A $ 1,286,081 Common Stock N/A
Pershing Square International, Ltd.
October 9, 2013 Buy 529,707 $ 1.57 N/A $ 830,951 Common Stock N/A
Pershing Square International, Ltd.
October 10, 2013 Buy 742,048 $ 1.60 N/A $ 1,187,203 Common Stock N/A
Pershing Square International, Ltd.
October 11, 2013 Buy 558,335 $ 1.62 N/A $ 905,284 Common Stock N/A
Pershing Square International, Ltd.
October 14, 2013 Buy 280,750 $ 1.62 N/A $ 454,478 Common Stock N/A
Pershing Square International, Ltd.
October 15, 2013 Buy 283,595 $ 1.63 N/A $ 463,621 Common Stock N/A
Pershing Square International, Ltd.
October 16, 2013 Buy 698,240 $ 1.60 N/A $ 1,119,698 Common Stock N/A
Pershing Square International, Ltd.
October 17, 2013 Buy 632,200 $ 1.55 N/A $ 982,818 Common Stock N/A
Pershing Square International, Ltd.
October 18, 2013 Buy 314,424 $ 1.53 N/A $ 482,295 Common Stock N/A
Pershing Square International, Ltd.
October 21, 2013 Buy 1,091,000 $ 1.62 N/A $ 1,763,820 Common Stock N/A
Pershing Square International, Ltd.
October 22, 2013 Buy 1,745,200 $ 1.73 N/A $ 3,023,559 Common Stock N/A
Pershing Square International, Ltd.
October 23, 2013 Buy 3,815,247 $ 2.01 N/A $ 7,682,763 Common Stock N/A
Pershing Square International, Ltd.
October 24, 2013 Buy 2,771,702 $ 2.14 N/A $ 5,921,741 Common Stock N/A
Pershing Square International, Ltd.
October 25, 2013 Buy 2,203,315 $ 2.10 N/A $ 4,625,199 Common Stock N/A
Pershing Square International, Ltd.
October 28, 2013 Buy 2,617,797 $ 2.35 N/A $ 6,158,106 Common Stock N/A
Pershing Square International, Ltd.
October 29, 2013 Buy 3,239,527 $ 2.38 N/A $ 7,717,201 Common Stock N/A
Pershing Square International, Ltd.
October 30, 2013 Buy 2,587,179 $ 2.31 N/A $ 5,974,055 Common Stock N/A
Pershing Square International, Ltd.
October 31, 2013 Buy 1,989,850 $ 2.27 N/A $ 4,510,990 Common Stock N/A
Pershing Square International, Ltd.
November 1, 2013 Buy 2,104,320 $ 2.41 N/A $ 5,078,987 Common Stock N/A
Pershing Square International, Ltd.
November 4, 2013 Buy 1,135,200 $ 2.38 N/A $ 2,704,955 Common Stock N/A
Pershing Square International, Ltd.
November 5, 2013 Buy 1,811,155 $ 2.34 N/A $ 4,243,717 Common Stock N/A
Pershing Square International, Ltd.
November 6, 2013 Buy 1,935,783 $ 2.27 N/A $ 4,396,550 Common Stock N/A
Pershing Square International, Ltd.
November 7, 2013 Buy 1,111,387 $ 2.38 N/A $ 2,648,880 Common Stock N/A
Pershing Square International, Ltd.
November 8, 2013 Buy 1,494,439 $ 2.35 N/A $ 3,509,839 Common Stock N/A
Pershing Square International, Ltd.
November 11, 2013 Buy 1,095,500 $ 2.35 N/A $ 2,576,068 Common Stock N/A
Pershing Square International, Ltd.
November 12, 2013 Buy 1,271,649 $ 2.40 N/A $ 3,055,773 Common Stock N/A
Pershing Square International, Ltd.
November 13, 2013 Buy 2,666,168 $ 2.53 N/A $ 6,741,672 Common Stock N/A
Pershing Square International, Ltd.
November 14, 2013 Buy 8,640,709 $ 2.94 N/A $ 25,385,606 Common Stock N/A
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Name
Trade Date
Buy/Sell No. of Shares /Quantity Unit Cost Strike Price Trade Amount
Security
Expiration Date
Pershing Square Holdings, Ltd.
October 7, 2013 Buy 250,581 $ 1.54 N/A $ 385,845 Common Stock N/A
Pershing Square Holdings, Ltd.
October 8, 2013 Buy 394,100 $ 1.61 N/A $ 634,501 Common Stock N/A
Pershing Square Holdings, Ltd.
October 9, 2013 Buy 261,535 $ 1.57 N/A $ 410,270 Common Stock N/A
Pershing Square Holdings, Ltd.
October 10, 2013 Buy 366,012 $ 1.60 N/A $ 585,583 Common Stock N/A
Pershing Square Holdings, Ltd.
October 11, 2013 Buy 275,457 $ 1.62 N/A $ 446,626 Common Stock N/A
Pershing Square Holdings, Ltd.
October 14, 2013 Buy 138,574 $ 1.62 N/A $ 224,324 Common Stock N/A
Pershing Square Holdings, Ltd.
October 15, 2013 Buy 139,949 $ 1.63 N/A $ 228,789 Common Stock N/A
Pershing Square Holdings, Ltd.
October 16, 2013 Buy 344,640 $ 1.60 N/A $ 552,665 Common Stock N/A
Pershing Square Holdings, Ltd.
October 17, 2013 Buy 312,045 $ 1.55 N/A $ 485,105 Common Stock N/A
Pershing Square Holdings, Ltd.
October 18, 2013 Buy 154,944 $ 1.53 N/A $ 237,669 Common Stock N/A
Pershing Square Holdings, Ltd.
October 21, 2013 Buy 538,000 $ 1.62 N/A $ 869,785 Common Stock N/A
Pershing Square Holdings, Ltd.
October 22, 2013 Buy 861,200 $ 1.73 N/A $ 1,492,029 Common Stock N/A
Pershing Square Holdings, Ltd.
October 23, 2013 Buy 1,882,702 $ 2.01 N/A $ 3,791,197 Common Stock N/A
Pershing Square Holdings, Ltd.
October 24, 2013 Buy 1,363,665 $ 2.14 N/A $ 2,913,470 Common Stock N/A
Pershing Square Holdings, Ltd.
October 25, 2013 Buy 1,086,760 $ 2.10 N/A $ 2,281,327 Common Stock N/A
Pershing Square Holdings, Ltd.
October 28, 2013 Buy 1,291,803 $ 2.35 N/A $ 3,038,837 Common Stock N/A
Pershing Square Holdings, Ltd.
October 29, 2013 Buy 1,597,861 $ 2.38 N/A $ 3,806,424 Common Stock N/A
Pershing Square Holdings, Ltd.
October 30, 2013 Buy 1,275,805 $ 2.31 N/A $ 2,945,961 Common Stock N/A
Pershing Square Holdings, Ltd.
October 31, 2013 Buy 866,575 $ 2.27 N/A $ 1,964,526 Common Stock N/A
Pershing Square Holdings, Ltd.
November 1, 2013 Buy 1,030,080 $ 2.41 N/A $ 2,486,201 Common Stock N/A
Pershing Square Holdings, Ltd.
November 4, 2013 Buy 555,686 $ 2.38 N/A $ 1,324,089 Common Stock N/A
Pershing Square Holdings, Ltd.
November 5, 2013 Buy 885,946 $ 2.34 N/A $ 2,075,860 Common Stock N/A
Pershing Square Holdings, Ltd.
November 6, 2013 Buy 946,925 $ 2.27 N/A $ 2,150,656 Common Stock N/A
Pershing Square Holdings, Ltd.
November 7, 2013 Buy 544,778 $ 2.38 N/A $ 1,298,424 Common Stock N/A
Pershing Square Holdings, Ltd.
November 8, 2013 Buy 730,200 $ 2.35 N/A $ 1,714,948 Common Stock N/A
Pershing Square Holdings, Ltd.
November 11, 2013 Buy 535,750 $ 2.35 N/A $ 1,259,816 Common Stock N/A
Pershing Square Holdings, Ltd.
November 12, 2013 Buy 622,051 $ 2.40 N/A $ 1,494,789 Common Stock N/A
Pershing Square Holdings, Ltd.
November 13, 2013 Buy 1,303,596 $ 2.53 N/A $ 3,296,273 Common Stock N/A
Pershing Square Holdings, Ltd.
November 14, 2013 Buy 4,225,750 $ 2.94 N/A $ 12,414,864 Common Stock N/A
--------------------------------------------------------------------------------
Name
Trade Date
Buy/Sell No. of Shares / Quantity Unit Cost Strike Price Trade Amount
Security
Expiration Date
Pershing Square II, L.P.
October 7, 2013 Buy 8,259 $ 1.54 N/A $ 12,717 Common Stock N/A
Pershing Square II, L.P.
October 8, 2013 Buy 13,180 $ 1.61 N/A $ 21,220 Common Stock N/A
Pershing Square II, L.P.
October 9, 2013 Buy 8,617 $ 1.57 N/A $ 13,517 Common Stock N/A
Pershing Square II, L.P.
October 10, 2013 Buy 12,072 $ 1.60 N/A $ 19,314 Common Stock N/A
Pershing Square II, L.P.
October 11, 2013 Buy 9,216 $ 1.62 N/A $ 14,943 Common Stock N/A
Pershing Square II, L.P.
October 14, 2013 Buy 4,569 $ 1.62 N/A $ 7,396 Common Stock N/A
Pershing Square II, L.P.
October 15, 2013 Buy 4,680 $ 1.63 N/A $ 7,651 Common Stock N/A
Pershing Square II, L.P.
October 16, 2013 Buy 11,360 $ 1.60 N/A $ 18,217 Common Stock N/A
Pershing Square II, L.P.
October 17, 2013 Buy 10,440 $ 1.55 N/A $ 16,230 Common Stock N/A
Pershing Square II, L.P.
October 18, 2013 Buy 5,112 $ 1.53 N/A $ 7,841 Common Stock N/A
Pershing Square II, L.P.
October 21, 2013 Buy 17,750 $ 1.62 N/A $ 28,696 Common Stock N/A
Pershing Square II, L.P.
October 22, 2013 Buy 28,800 $ 1.73 N/A $ 49,896 Common Stock N/A
Pershing Square II, L.P.
October 23, 2013 Buy 62,087 $ 2.01 N/A $ 125,025 Common Stock N/A
Pershing Square II, L.P.
October 24, 2013 Buy 45,073 $ 2.14 N/A $ 96,298 Common Stock N/A
Pershing Square II, L.P.
October 25, 2013 Buy 36,360 $ 2.10 N/A $ 76,327 Common Stock N/A
Pershing Square II, L.P.
October 28, 2013 Buy 42,603 $ 2.35 N/A $ 100,219 Common Stock N/A
Pershing Square II, L.P.
October 29, 2013 Buy 53,460 $ 2.38 N/A $ 127,352 Common Stock N/A
Pershing Square II, L.P.
October 30, 2013 Buy 42,092 $ 2.31 N/A $ 97,195 Common Stock N/A
Pershing Square II, L.P.
October 31, 2013 Buy 28,050 $ 2.27 N/A $ 63,589 Common Stock N/A
Pershing Square II, L.P.
November 1, 2013 Buy 34,080 $ 2.41 N/A $ 82,255 Common Stock N/A
Pershing Square II, L.P.
November 4, 2013 Buy 18,392 $ 2.38 N/A $ 43,824 Common Stock N/A
Pershing Square II, L.P.
November 5, 2013 Buy 29,353 $ 2.34 N/A $ 68,777 Common Stock N/A
Pershing Square II, L.P.
November 6, 2013 Buy 31,345 $ 2.27 N/A $ 71,191 Common Stock N/A
Pershing Square II, L.P.
November 7, 2013 Buy 18,278 $ 2.38 N/A $ 43,564 Common Stock N/A
Pershing Square II, L.P.
November 8, 2013 Buy 24,169 $ 2.35 N/A $ 56,763 Common Stock N/A
Pershing Square II, L.P.
November 11, 2013 Buy 17,750 $ 2.35 N/A $ 41,739 Common Stock N/A
Pershing Square II, L.P.
November 12, 2013 Buy 20,591 $ 2.40 N/A $ 49,480 Common Stock N/A
Pershing Square II, L.P.
November 13, 2013 Buy 43,169 $ 2.53 N/A $ 109,157 Common Stock N/A
Pershing Square II, L.P.
November 14, 2013 Buy 139,940 $ 2.94 N/A $ 411,131 Common Stock N/A
that's what I'm wondering...will retailers sit the fence and play the wait and see game, or will they take a chance with more positive news and run this puppy to double digit dollars hoping for a kickass payday
Looking for opinions with reasonable justification...
Just want to know what others think...and please give a viable reasoning for your thoughts.
Would you consider that the COMMON shares have an intrinsic value greater than the junior prfs. in the long run...assuming the hedges are able to buy out FnF and move forward as newco's.
the juniors FNMAS have a stated max value of $25 pps...though they CAN go above that value...not really a reason for that to happen.
The commons have no set max value...but are more susceptible to price /value fluctuations based on what happens with the proposed buyout.
I see HOD at 3.10...after hours cleanup, so I assume it was last minute buys and late postings by the mm's...some dam big blocks too!!
Price Size Mkt Time
$3.09 100,000 OTCBB 16:17:55
$3.10 100,000 OTCBB 16:16:45
$3.09 100,000 OTCBB 16:14:24
$3.10 100,000 OTCBB 16:13:58
$3.10 13,541 OTCBB 16:10:27
$3.10 130,284 OTCBB 16:09:40
$3.09 130,000 OTCBB 16:09:36
$3.09 145,000 OTCBB 16:06:47
$3.10 400 OTCBB 16:06:39
$3.10 144,716 OTCBB 16:05:55
$3.10 200 OTCBB 16:05:45
$3.10 200 OTCBB 16:05:41
$3.08 12,000 OTCBB 16:05:23
$3.10 10,000 OTCBB 16:04:56
$3.10 200 OTCBB 16:04:51
$3.10 200 OTCBB 16:04:43
$3.09 200 OTCBB 16:03:38
$3.08 4,884 OTCBB 16:03:12
$3.07 4,884 OTCBB 16:03:07
$3.06 150 OTCBB 16:03:02
$3.08 600 OTCBB 16:02:49
$3.08 600 OTCBB 16:02:49
$3.08 1,000 OTCBB 16:01:59
$3.08 100 OTCBB 16:01:57
$3.08 2,000 OTCBB 16:01:57
$3.08 300 OTCBB 16:01:53
$3.08 380 OTCBB 16:01:53
$3.07 1,000 OTCBB 16:01:20
$3.07 190 OTCBB 16:01:08
$3.07 1,000 OTCBB 16:01:06
uplisting is NOT an automatic move based on pps. The conservator would have to request uplisting and file the appropriate paperwork for review.....assuming the company meets all the requirements...then it's a waiting game at best.
An Unconstitutional Bonanza
by Richard A. Epstein (Peter and Kirsten Bedford Senior Fellow and member of hoover ip squared working group steering committee)
Link
http://www.hoover.org/publications/defining-ideas/article/161456
The government has seized billions of dollars from Fannie and Freddie’s private shareholders.
In a previous column, Grand Theft Treasury, I highlighted the recent lawsuits (now numbering seventeen) brought against the United States in connection with its controversial conservatorship of two government-sponsored enterprises, The Federal National Mortgage Association (Fannie Mae) and The Federal Home Loan Mortgage Corporation (Freddie Mac).
The occasion for that story was the then-recent public announcement that about $59 billion had been paid to the United States Treasury as a “dividend” on the $188 billion in purchase money payments that Treasury had advanced to Fannie and Freddie pursuant to agreements that it had entered into with its conservator, the Federal Housing Finance Agency (FHFA). The two key agreements were the initial “Senior Preferred Stock Purchase Agreement” of September 26, 2008, and the Third Amendment to that agreement of August 17, 2012. (All the relevant documents can be found here).
http://www.fhfa.gov/Default.aspx?Page=364
This past week two events of note took place. First, the United States filed its much anticipated brief in Washington Federal v. United States, defending itself against charges that it had seized the wealth of the private shareholders of Fannie and Freddie. The second is that FHFA, on behalf of Fannie and Freddie, paid the Treasury another $39 billion in dividends on the original advances of about $188 billion. Combined with the earlier payments, the Treasury has now virtually recouped its huge original advance. The prospect of further and equally lucrative paydays promises to turn Treasury’s erstwhile “rescue operation” into an unparalleled bonanza for the government. The deal looks almost too good to be true. Indeed, a close examination of the government’s responsive brief reveals that it is.
The Original Deal
At root, the legal challenges to the government’s action rest on the one-sided terms of the original stock purchase agreement and especially the controversial Third Amendment. In September 2008, FHFA wrested control away from the Boards of Directors of Fannie and Freddie by installing itself as the conservator of both corporations, charged with managing all of their affairs. Armed with these extensive powers, FHFA promptly entered into a sweetheart deal with Treasury whereby Treasury purchased a new issue of senior preferred stock from Fannie and Freddie for about $188 billion, which carried with it a 10 percent dividend, and an option that allowed Treasury to acquire some 79.9 percent of the common stock for the nominal price of $0.00001 per share. That transaction drove down the prices of the common and (now junior) preferred. The 2012 Third Amendment replaced the previous 10 percent dividend with a “sweep” to Treasury of all the net profits of Fannie and Freddie, as of January 1, 2013.
The deal was made just as both companies were returning to profitability. As commonly expected, the revised agreement has proved wholly one-sided. Treasury has reaped over one hundred billion dollars and, through the profit sweep, has assured that Fannie and Freddie will never amass a single dime to enable the repurchase of the senior preferred stock. A conservatorship requires the conservator to act in the best interest of its beneficiaries—here the shareholders of Fannie and Freddie at the time the conservatorship was imposed. The original stock purchase agreement, and most emphatically the Third Amendment, which benefited only FHFA and Treasury, were signed in blatant violation of that basic duty. FHFA’s responsibility to the shareholders demands, at the very least, was that the Third Amendment be unraveled, and not exalted.
The Government’s Response
In speaking and writing about this issue (which I have done as a paid consultant for several hedge funds), I have often been asked how the government could defend itself in these dubious transactions that would be regarded as both intolerable and illegal if done by private parties. The government brief does not provide an acceptable answer to that question on either procedural or substantive grounds.
The Procedural Move.The government’s initial move is to refer to a key provision of the conservatorship law that it reads as making it impossible for the shareholders to have their day in court. Thus under 12 U.S.C. § 4617(b)(2)(A), FHFA shall “as conservator or receiver, and by operation of law, immediately succeed to—(i) all rights, titles, powers, and privileges of the regulated entity, and of any stockholder, officer, or director of such regulated entity with respect to the regulated entity and the assets of the regulated entity.” According to the government, this provision silences the shareholders because all their rights and powers have been transferred to FHFA.
That extravagant claim makes sense only so long as the interests of FHFA are aligned with those of its shareholders. The obvious distress of many financial institutions means that something has gone amiss. It is therefore a legitimate legislative judgment to grant the new government officials the power to pursue all claims that the corporations and their shareholders could bring against outsiders.
In support of its position, the government cites a 2012 Circuit Court decision, Kellmer v. Raines, which held that only FHFA was in a position to sue the former officers and directors of Fannie and Freddie for the breach of their duties to the corporation. That court insisted that, as a general proposition, its sole job was to “read the statute,” from which it concluded that “all rights, titles powers, and privileges” meant just that.
Therefore, on the basis of Washington Mutual, the government now insists that individual shareholders cannot sue FHFA and Treasury either as owners of shares or “derivatively” (that is, not in their own right but on behalf of the corporation). Thus the government concludes that persons who claim that billions of their dollars have made it into the treasury lack “standing” to challenge the FHFA and Treasury in court on, it appears, any and all legal grounds.
Two responses are appropriate. First, it is an absurd literalism to read the statute as though it contains no implied and necessary exception for those cases in which shareholders claim that FHFA has acted in violation of the duty of loyalty to them. The general legal maxim is that no person shall be a judge in his own cause, which is just what the government does with its wooden reading of the statute. The judicial injunction to read the statute means to read it as a whole, so as to make sense of all its moving parts, not just some.
Second, read as the government would have it, the statute is flatly unconstitutional because it denies individuals and their property the protections afforded against the government by the Fifth Amendment to the Constitution, which says “No person shall . . . be deprived of life, liberty, or property, without due process of law.” This, at a minimum, gives them the right to a hearing before a neutral and impartial judge in cases that involve major disputes over the nature and validity of substantial property claims.
The canon of constitutional avoidance holds that all statutes should be construed to avoid any serious clash with the Constitution “unless such construction is plainly contrary to the intent of Congress.” The government’s interpretation of the statute flouts that rule; if adopted, it should lead to the statute’s invalidation to the extent that it bars shareholders from the courtroom door.
The Substantive Move. The government’s second response is that even if they are allowed into Court, the shareholders of Fannie and Freddie really have nothing to complain about because their property has not been taken. At one point, the government makes the weird claim that this action should be barred because the plaintiffs do not allege that “the Government has the citizen’s money in its pocket.” The technical reason for that claim is that Washington Mutual did not allege that the government had taken the money, but only that it had suffered a reduction in its shares’ value as a result of the government’s action.
Yet that perceived defect in pleading is easily remedied. The explicit purchase agreement took stock from the corporations in exchange for the infusion of cash. The taking comes from the fact that the value given to Fannie and Freddie was less than the value taken from the corporations. Phrased in this way, there are 100 billion reasons why money that belonged to the two corporations ended up in the pockets of the United States after the last two major sweeps.
The argument that these transactions count as takings is no more complex than the simple claim that the government forcibly takes the house of A, worth $100,000, for a mere $25,000. The forced purchase on unequal terms is a taking of $75,000, which should be enjoined unless the government ponies up the remaining $75,000. The situation does not change if the government plunks down that $25,000 in cash in exchange for a mortgage upon the property for $75,000, which it then empowers itself to collect by renting out the premises, keeping all the rents net of expenses for itself.
The Third Amendment to the Stock Purchase Agreement represents just this kind of one-sided transaction. Yet the government seeks to avoid this obvious implication by three specious arguments. First, it claims that there really was a mutually beneficial bargain here. After all, the Third Amendment was needed “because of a concern that the Enterprises, although solvent with Treasury’s assistance, would fail to generate enough revenue to fund the 10 percent dividend obligation.” Fat chance. Indeed, the one way to magnify the miniscule risk of default is to strip Fannie and Freddie of liquidity by the unilateral “dividend” payment made to the government. As a conservator, FHFA is supposed to defend shareholders, not fork over their money to Treasury.
Next, the government offers two more threadbare arguments for its position. The first is that the time is not “ripe” for a complete accounting because the books have not closed on the transaction. But the goal in this case is to stop the bloodletting before the patient is dead, not to let the government go on with its rigged scheme until that future day when it will solemnly pronounce that it is just too late to unravel this complex transaction.
Finally, the government claims that the shareholders of Fannie and Freddie have assumed the risk that they will be looted. After all, an extensive body of law, much of which comes out of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), takes the highly contentious line that all banks know that they cannot challenge government regulations because they have willingly entered into a highly regulated area. Consequently, they do not have the requisite “investment-backed expectations” that they will be free of government regulation.
But this lawsuit is not a case where the government has acted pursuant to its general powers to regulate thrift institutions. Those cases are worlds apart from the present for two reasons. First, the source of the shareholders’ disaffection here is the purchase agreement of the senior preferred stock, and not any form of general government regulation of banks that have otherwise failed. Second, those cases do not contain the obvious element of self-dealing which pervades the Third Amendment.
Notwithstanding the government’s efforts to sugarcoat the obvious, this deal remains one of the most lopsided and unfair transactions in the annals of United States history—which says a lot about the sad state of public law and finance today.
U.S. should get mortgage firm data for probe, judge says
Link
http://www.reuters.com/article/2013/11/11/us-clayton-probe-mortgages-idUSBRE9AA0SF20131111
(Reuters) - A federal judge on Monday recommended that a large firm that reviewed mortgages for Wall Street banks turn over e-mails and other data that may help the government decide which banks to sue for packaging shoddy mortgages into securities that fueled the financial crisis.
U.S. Magistrate Judge Donna Martinez in Hartford, Connecticut, said Clayton Holdings LLC should turn over due diligence reviews it prepared for its clients from 2005 through 2007, e-mails between employees and clients during that time, and a database that was used in providing services.
Investigators had subpoenaed the materials on July 1 on behalf of the Residential Mortgage-Backed Securities Working Group, which includes the U.S. Department of Justice and other federal and state regulators.
If enforced, the subpoena could help the government pursue cases against banks it wants to hold accountable for selling securities that fueled the U.S. housing and financial crises.
The government alleged that Clayton's due diligence reviews discussed "potential problems with individual loans making up the loan pools, as did internal and external communications at Clayton associated with the reviews."
Clayton called the subpoena a "fishing expedition" on its dealings with its 193 clients, not just the 16 financial institutions that the government had advised were being probed. It also said it has cooperated with the working group and responded to "every government request for over six years."
Martinez nonetheless concluded that Clayton did not show that it was too burdensome to comply with the subpoena, or that the government already had much of the information it sought.
"The government's investigation into abuses in the residential mortgage-backed securities market is broad and extensive," she wrote. "The relevance of the agency's subpoena requests may be measured only against the general purposes of its investigation... Clayton has not met its burden of showing that the subpoena is unreasonable."
Martinez's recommendation now goes to U.S. District Judge Robert Chatigny in Hartford, who oversees the case.
Marc Rothenberg, a partner at Blank Rome representing Clayton, declined to comment, saying the company does not discuss litigation.
The case is being handled by the office of U.S. Attorney Loretta Lynch in the Eastern District of New York. Robert Nardoza, a spokesman for Lynch, did not immediately respond to a request for comment. Thomas Carson, a spokesman for Acting U.S. Attorney Dierdre Daly in Connecticut, declined to comment.
Clayton was a "major provider of third-party due diligence services" to Wall Street, according to the Financial Crisis Inquiry Commission's 2011 report.
"Because of the volume of loans examined by Clayton during the housing boom, the firm had a unique inside view of the underwriting standards that originators were actually applying - and that securitizers were willing to accept," it said.
The government issued the subpoena under the Financial Institutions, Reform, Recovery and Enforcement Act of 1989, which it uses to recover civil penalties for losses to federally insured financial institutions.
FIRREA has a 10-year statute of limitations, versus five years for some securities fraud laws. Bank of America Corp and Wells Fargo & Co are among companies that the government has sued under FIRREA in mortgage-related cases
The case is U.S. v. Clayton Holdings LLC, U.S. District Court, District of Connecticut, No. 13-mc-00116
Fannie Mae and Freddie Mac Pay $39 Billion to U.S. Taxpayers in Dividends
Link
http://www.fool.com/investing/general/2013/11/08/fannie-mae-and-freddie-mac-pay-39-billion-to-us-ta.aspx
Following their third-quarter earnings announcements yesterday, Fannie Mae and Freddie Mac declared they would be returning a combined $39 billion to the U.S. Government, in the form of dividends, in December of this year.
Fannie Mae and Freddie Mac received a total of approximately $187.5 billion in cash from the Treasury Department, and have paid back a total of $185.3 billion in the form of dividends to the U.S. Government. The essential purpose of these government-sponsored entities is not to issue mortgages, but instead, to buy them from banks, and then either hold onto them and collect the payments, or bundle the mortgages together and sell certificates known as mortgage-backed securities.
The two companies have been under conservatorship of the Federal Housing Finance Agency (FHFA) since September of 2008. Although the companies were placed into conservatorship in 2008, the agreement was amended in 2012 stipulating that they are required to pay essentially all of their profits to the U.S. Treasury. This does not serve as a repayment of the initial infusion of cash, but as a return on the investment. This is due, in large part, to the U.S. Government still retaining its $117.1 billion position in Fannie Mae's senior preferred stock and $72.3 billion position in Freddie Mac.
Freddie Mac
As a result of the agreement, Freddie Mac has actually returned more to the U.S. Government than it received, as it will have paid out $71.345 billion to the U.S. Government, and it only received $71.336 billion. Its biggest payment will occur in December of this year when it issues a $30.4 billion dividend. This stems largely from a $23.9 billion benefit it received from the release of the value held in a deferred tax asset.
Excluding the income tax benefit, Freddie Mac saw significant gains in its income, which rose from $4.9 billion in the second quarter of this year, to $6.5 billion in the third quarter. This increase was due to a number of factors, but one reason was the settlement agreement it came to with Wells Fargo, Citigroup, and SunTrust, resulting in a $900 million payout. It also saw significant gains in its benefit for credit losses, indicating it does not anticipate it will lose as much money as it previously guided, as that moved $600 million, to $1.1 billion, for a gain of $500 million.
Fannie Mae
In total, Fannie Mae has paid $113.9 billion in the form of dividends to the U.S. Government, while the U.S. Treasury issued $116.1 billion in bailout funds to Fannie Mae. In the first quarter of this year, Fannie Mae released a $50.6 billion valuation allowance on a deferred tax asset and, in total, will have paid $82.4 billion to the U.S. Government in the form of dividends in 2013 alone following its $8.6 payment this quarter.
On the quarter, Fannie Mae saw its net income drop from $10.1 billion in the second quarter, to $8.7 in the third quarter, but this was almost entirely attributable to a reduction of $2.7 billion in its benefit realized for credit losses. It also saw an $800 million gain in income resulting from its foreclosed property.
Moving forward
The two companies continue to deliver profitability following the recovery of the housing market, with Fannie Mae and Freddie Mac reporting seven and eight straight profitable quarters, respectively.
Many on Wall Street, Washington, and everywhere else questioned the viability and ethical nature of Fannie Mae and Freddie Mac, following the financial crisis, which stemmed directly from the collapse of the housing market they support. However, as the recovery continues, these companies also have recovered to their immensely profitable levels. Regrettably for investors in these publicly traded companies, their interests are secondary to those of the U.S. Government. As the law reads today, they do not see a dime.
MB - these are all the trades I had in the L2 list from earlier today.
Price Size Mkt Time
$2.40 1,000 OTCBB 11:35:42
$2.45 500 OTCBB 11:21:46
$2.40 835 OTCBB 11:20:22
$2.41 100 OTCBB 10:35:09
$2.41 1,495 OTCBB 10:23:57
$2.40 505 OTCBB 10:23:57
$2.44 900 OTCBB 10:15:40
$2.44 4,000 OTCBB 10:15:40
$2.44 100 OTCBB 10:15:40
$2.40 2,700 OTCBB 10:10:19
$2.40 300 OTCBB 10:10:19
$2.36 100 OTCBB 10:09:43
$2.40 4,400 OTCBB 10:02:44
$2.40 20,000 OTCBB 10:02:38
$2.315 600 OTCBB 10:01:11
$2.32 1,500 OTCBB 10:01:11
$2.315 150 OTCBB 10:01:11
$2.32 100 OTCBB 10:00:50
$2.32 1,000 OTCBB 10:00:47
$2.42 5,000 OTCBB 09:58:46
$2.40 100 OTCBB 09:58:01
$2.40 500 OTCBB 09:54:36
$2.41 1,400 OTCBB 09:39:21
$2.315 1,050 OTCBB 09:38:12
$2.41 100 OTCBB 09:38:01
$2.41 100 OTCBB 09:37:32
$2.41 100 OTCBB 09:36:03
$2.41 500 OTCBB 09:35:29
$2.41 2,500 OTCBB 09:35:06
$2.41 100 OTCBB 09:34:58
L2 trades prior to the halt....notice the jump at 10AM timestamp
Price Size Mkt Time
$2.40 1,000 OTCBB 11:35:42
$2.45 500 OTCBB 11:21:46
$2.40 835 OTCBB 11:20:22
$2.41 100 OTCBB 10:35:09
$2.41 1,495 OTCBB 10:23:57
$2.40 505 OTCBB 10:23:57
$2.44 900 OTCBB 10:15:40
$2.44 4,000 OTCBB 10:15:40
$2.44 100 OTCBB 10:15:40
$2.40 2,700 OTCBB 10:10:19
$2.40 300 OTCBB 10:10:19
$2.36 100 OTCBB 10:09:43
$2.40 4,400 OTCBB 10:02:44
$2.40 20,000 OTCBB 10:02:38
$2.315 600 OTCBB 10:01:11
$2.32 1,500 OTCBB 10:01:11
$2.315 150 OTCBB 10:01:11
$2.32 100 OTCBB 10:00:50
I agree 100%...to hinder panic trading, they will halt a stock based on a wild spread...however...since this covers the entire OTCBB I would surmise they have incoming feed failures...most likely the Telco switches and routers....quite possibly a major fibre cut has taken out their trunked feeds.
FROM THE OTCBB WEBSITE
On Thursday, November 7, 2013, the Financial Industry Regulatory Authority, Inc. (“FINRA”) halted trading in all OTC Equity Securities pursuant to FINRA Rule 6440(a)(3). FINRA determined to impose a temporary halt because of a lack of current quotation information. Therefore, FINRA has determined that halting quoting and trading in all OTC Equity Securities is appropriate to protect investors and ensure a fair and orderly marketplace. The trading and quotation halt began on Thursday, November 7, 2013, at 11:25:00 a.m. E.T. FINRA will notify the market when trading may resume.
Contact Information: Questions regarding this notice can be directed to: FINRA Operations at (866) 776-0800.
Please clarify if you would...the treasury owns senior preferred to the tune of I believe 1 million shares...do they ALSO have warrants to purchase 79.9% of common over and above the senior preferred?
Rules for a retirement account may differ based on broker rules/requirements. Typically a "daytrade" is the buy AND sell of the same security within the same business day....OR...a short sell AND buyback of the same security within the same business day.
Again...to daytrade one must have a minimum of $25k in your account, and for shorting most brokers require a margin account.
You must have a minimum of $25000 to "day trade". Most brokers will give you a timeout of up to 90 days if you day trade (or attempt) below that amount. With some brokers, you must inform them you plan to day trade or they will cancel your trades (T+3 rule) and give you a timeout.
ALWAYS check with your broker if you intend to attempt a trade or trades that aren't considered a normal T+3 trade.
Congressional Dysfunction May Save Fannie Mae and Freddie Mac
Link
http://www.fool.com/investing/general/2013/10/27/congressional-dysfunction-may-save-fannie-mae-and.aspx
Many people and companies were hurt by the recent government shutdown and threat of default. But as Congressional dysfunction continues to become entrenched as the norm, mortgage giants Fannie Mae (NASDAQOTCBB: FNMA ) and Freddie Mac (NASDAQOTCBB: FMCC ) are being put in a better position to realize value for their common and junior preferred stockholders. In fact, if Congress were to act in a cooperative, bipartisan basis, the GSEs could find their continuing existence very difficult.
Congressional inaction
Shares of Fannie and Freddie were temporarily hit last summer when a bill with bipartisan support rose to headlines in the Senate. The bill called for the dismantling of the GSEs and their assets to be liquidated in a way that would make recovery for common and junior preferred shareholders highly unlikely. This was combined with President Obama's noting his support for a bill to wind down Fannie and Freddie.
Now, it may sound as if the GSEs are doomed. But we have to remember what the real value of bipartisan and presidential support is. We saw bipartisan and presidential support for the gun control bill crafted in the wake of the Newtown tragedy and similar support for comprehensive immigration reform. Both issues have grabbed much more national attention than GSE reform, yet the support of members of both parties, the president, and the majority of the public were still not enough to pass either one.
While both Congressional Democrats and Republicans generally agree on a wind-down of Fannie and Freddie, the issue is far from resolved in Congress, and looking at current trends, GSE reform is not near the top of the list.
A speculative bet
Fannie Mae and Freddie Mac were originally taken over in a conservatorship-style approach, where the government would inject funds in exchange for 10% yielding senior preferred stock. Shares of the GSEs traded around $0.30 a piece, as most investors saw them as perpetual money pits that could never pay back their bailout funds, eventually requiring the GSEs to be wound down in some way.
However, Fannie and Freddie managed to show signs of life again, after some analysts began to see the potential for profits. But around the same time, the Sweep Amendment was introduced to sweep all of the profits of the GSEs (not just those necessary for the senior preferred stock interest payments) into the Treasury.
With this set-up, it would be impossible for the GSEs to ever emerge from government control, since the payments didn't go toward buying back the senior preferred stock held by the Treasury.
Court battle
Fannie and Freddie's only hopes now come from the lawsuits filed by various private investors challenging the government's involvement in the GSEs. Among the plaintiffs are Perry Capital and Bruce Berkowitz, the contrarian investor known for taking a huge stake in American International Group, along with major banks.
If they're successful in their lawsuits, shares of both the common stock and the junior preferred stock (where the dividend is currently suspended) could surge in value. With Fannie Mae Series S preferred shares (NASDAQOTCBB: FNMAS ) trading at less than 27 cents on the dollar, the upside potential is quite high and serves as a primary reason the plaintiffs are suing the government.
A game of delay
The current state of Fannie and Freddie provides no shareholder value for common or preferred stockholders. For these shareholders to realize value, the policies around the GSEs need to change.
If done by Congressional action, it's unlikely that non-government shareholders would receive much of anything. If resolved through litigation, there is a chance the Sweep Amendment could be thrown out and the GSEs would be able to begin buying back the government's senior preferred stock, eventually emerging as highly profitable, privately owned entities.
However, litigation takes time and could last multiple years. In the meantime, common and junior preferred shareholders must continue to hope that Congress remains as divided and uncooperative as it has shown itself to be. Only that way do these stakeholders have a chance of seeing significant returns.
Until there is a resolution to the current uncertainty, Fannie Mae and Freddie Mac remain highly speculative investments with the potential for multibagger gains and total losses.
JPMorgan paying $5.1B in Fannie, Freddie deal
Link
http://finance.yahoo.com/news/jpmorgan-paying-5-1b-fannie-210200968.html
WASHINGTON (AP) -- JPMorgan Chase has agreed to pay $5.1 billion to resolve claims that it misled Fannie Mae and Freddie Mac about risky home loans and mortgage securities it sold them before the housing market collapsed.
The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the settlement Friday with JPMorgan, the largest U.S. bank. A broader deal with the Justice Department is still being negotiated.
JPMorgan sold around $33 billion in mortgage securities to Fannie and Freddie between 2005 and 2007, according to the agency. That was the second-most sold to Fannie and Freddie ahead of the crisis, behind only Bank of America Corp. The securities soured after the housing bubble burst in 2007, losing billions in value.
Fannie and Freddie were rescued in a taxpayer bailout in 2008 as they sank under the weight of mortgage losses.
In a statement Friday, JPMorgan called the agreement with the FHFA "an important step towards a broader resolution of the firm's" mortgage-related matters.
Edward DeMarco, the FHFA's acting director, said the settlement with JPMorgan "provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae's and Freddie Mac's assets on behalf of taxpayers."
The deal is expected to be followed by a broader agreement with the Justice Department and New York state authorities that's still being negotiated. Last weekend, JPMorgan reached a tentative agreement with Justice to pay $13 billion over bad loans and mortgage securities the bank sold before the crisis.
The $13 billion tentative deal included $4 billion to resolve the FHFA claims. Even reduced by that amount, it would be the largest penalty the government has extracted from a company for actions related to the financial crisis. It's unclear when the broader agreement will be finalized.
New York Attorney General Eric Schneiderman applauded the FHFA's settlement. "Five years after the financial crisis, it is critical that we continue to share resources to maximize the relief provided to struggling homeowners and ensure accountability for those who created the crisis in the first place," he said in a statement.
The crisis, triggered by vast sales of risky mortgage securities, plunged the economy into the deepest recession since the Great Depression.
The FHFA sued 18 financial institutions in September 2011 over their sales of mortgage securities to Fannie and Freddie. The total price for the securities sold was $196 billion.
The government rescued Fannie and Freddie during the financial crisis when both were on the verge of collapse. The companies received taxpayer aid totaling $187 billion. They have since become profitable and repaid $146 billion.
Fannie and Freddie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 percent of new mortgages. The two companies don't directly make loans to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make loans available and gives Fannie and Freddie a huge role in the housing market.
New York-based JPMorgan will pay about $2.74 billion to Freddie and $1.26 billion to Fannie for the securities it sold. JPMorgan is also paying $1.1 billion for home loans it sold to Fannie and Freddie ahead of the crisis. Under the terms of the settlement, JPMorgan admits no wrongdoing.
The mortgage securities that JPMorgan sold to Fannie and Freddie included billions that were packaged by two institutions that failed in 2008: Wall Street bank Bear Stearns and Seattle-based Washington Mutual, the largest U.S. savings and loan. JPMorgan bought Bear Stearns and Washington Mutual in deals brokered by the government.
A number of big banks, including JPMorgan, Goldman Sachs and Citigroup, previously have been accused of abuses in sales of securities linked to mortgages in the years leading up to the crisis. Together, they have paid hundreds of millions in penalties to settle civil charges brought by the SEC, which accused them of deceiving investors about the quality of the bonds they sold.
But no high-level Wall Street executives have been sent to jail over charges related to the financial crisis. And the banks in all the SEC cases were allowed to neither admit nor deny wrongdoing — a practice that brought criticism of the agency from judges and investor advocates. That has triggered public outrage. Some lawmakers and other critics demanded that the big bailed-out banks and senior executives be held accountable.
Until recently, JPMorgan has enjoyed a reputation for managing risk better than its Wall Street competitors. The bank came through the financial crisis in better shape than most of its rivals.
But in the past 18 months it has been engaged in a number of embarrassing and costly settlements.
In September, JPMorgan agreed to pay $920 million and admit that it failed to oversee trading that led to a $6 billion loss last year in its London operation. That combined amount, in settlements with three regulators in the U.S. and one in Britain, is one of the largest fines ever levied against a financial institution.
And in a first for a major company, JPMorgan admitted in the agreement with the SEC over the trading loss in London that it failed in its oversight.
In another case, the company agreed to pay a $100 million penalty and admitted that its traders acted "recklessly" with the London trades.
Citigroup, Credit Suisse Said to Face U.S. MBS Probes
I've highlighted a small blurb near the bottom involving Fannie and Freddie
Link
http://www.bloomberg.com/news/2013-10-24/citigroup-credit-suisse-said-to-face-u-s-mbs-probes.html
Credit Suisse Group AG (CSGN) and Citigroup Inc. (C) are among banks grappling with a round of U.S. probes into mortgage-bond sales, as the government uses a 1989 law to extend scrutiny of Wall Street’s role in the credit crisis and seek additional penalties from the industry.
The Justice Department is examining whether both companies violated the Financial Reform, Recovery and Enforcement Act, which targets misconduct affecting federally insured financial firms, according to people briefed on the situation. JPMorgan Chase & Co. (JPM) and Bank of America Corp. also are facing FIRREA inquiries, people familiar with those cases have said.
Credit Suisse sold about $150 billion in home loans to private investors and other non-agency mortgage-bond pools from 2004 through 2010, according to the Swiss bank’s 2010 annual report. Photographer: Gianluca Colla/Bloomberg
Oct. 23 (Bloomberg) -- Joshua Rosner, an analyst at Graham Fisher & Co., talks about JPMorgan Chase & Co.’s tentative $13 billion settlement to end civil claims over its sales of mortgage bonds. Rosner speaks with Sara Eisen, Scarlet Fu and Phil Mattingly on Bloomberg Television's "Surveillance." (Source: Bloomberg)
A task force created by President Barack Obama last year is making use of the law, a relic of the savings-and-loan crisis of the 1980s, while examining mortgage-bond underwriting that fueled investor losses and prompted unprecedented government bailouts of banks in 2008. FIRREA carries a 10-year statute of limitations, giving investigators twice as much time to bring complaints than allowed under other securities laws.
The wave of FIRREA probes will lead to “increased litigation costs for banks resulting from government investigations and related private plaintiff litigation and increased exposure for executives involved in these probes,” said Keith Miller, a partner at Perkins Coie LLP in New York.
The task force, comprising state and federal agencies, issued subpoenas and a public call for whistleblowers, amassed millions of documents and farmed out the work to about 10 U.S. attorneys offices. The Justice Department’s mortgage-bond inquiries now focus on about eight banks, a person familiar with the matter said earlier this week.
Colorado, Brooklyn
Citigroup, the third-largest U.S. lender, faces probes by U.S. attorneys in Colorado and Brooklyn, New York, according to the people, who asked not to be identified because the inquiries aren’t public. The investigation of Zurich-based Credit Suisse, Switzerland’s second-biggest bank, is being run by U.S. attorneys in Colorado and New Jersey, the people said. The Financial Times reported on its website Oct. 23 which attorneys offices are probing the banks.
Spokesmen for the three U.S. attorney’s offices, the Justice Department and the companies declined to comment or didn’t respond to messages seeking comment.
Citigroup sold $91 billion in home loans through private-label mortgage pools from 2005 through 2008, according to the New York-based firm’s most recent quarterly securities filing.
Private Investors
Litigation over private-label securitizations “certainly is the biggest of any remaining mortgage-related issues that we have,” Citigroup Chief Financial Officer John Gerspach, 60, said on an Oct. 23 conference call with bond investors. He didn’t describe specific demands.
The bank wrote in its annual report for 2012 that it has been cooperating with requests for information from regulators, states and the Justice Department about its handling of home loans, including their packaging and sale in securities.
Credit Suisse sold about $150 billion in home loans to private investors and other non-agency mortgage-bond pools from 2004 through 2010, according to the Swiss bank’s 2010 annual report. About $21.7 billion of the loans were sold primarily to banks, the lender said. The bank said in the report that it’s cooperating with regulators and other government entities looking into the packaging and sale of mortgage securities.
Legal Costs
Wall Street’s six biggest banks have piled up more than $100 billion in legal costs, including settlements and lawyers’ fees, since the financial crisis while responding to claims over foreclosures and shoddy mortgages, data compiled by Bloomberg show. The time limits for investigations allowed under FIRREA may add to those losses.
The four banks being examined for FIRREA violations issued a total of $788 billion of non-agency mortgage-backed securities between 2005 and 2007, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland. Bank of America, including deals handled by Countrywide Financial Corp. and Merrill Lynch & Co., was the top issuer with $549 billion, the data show.
FIRREA provides for penalties of more than $1 million for each fraudulent statement or act, and as much as $5 million for continuing violations of underlying criminal statutes. Those limits may be exceeded to recover ill-gotten gains or investor losses, according to the Justice Department.
Unspecified Penalties
U.S. attorneys in Charlotte, North Carolina, sued Bank of America in August, citing FIRREA. The complaint, seeking unspecified penalties, accused the firm of misleading investors about the quality of loans tied to $850 million in mortgage-backed securities. The bank, which is disputing the case, has said buyers of the bonds were “sophisticated investors” capable of assessing the risks.
The lender was accused in the lawsuit of defrauding investors, including federally insured financial institutions. The U.S. also said that alleged misconduct posed financial risks to Charlotte-based Bank of America itself by making it vulnerable to civil litigation and regulatory cases.
Bank of America is facing additional FIRREA scrutiny, two people with direct knowledge of the matter said this week. U.S. attorneys in Georgia and California are conducting probes tied to Countrywide., the subprime lender Bank of America acquired in 2008, the people said. U.S. attorneys in New Jersey are reviewing deals involving Merrill Lynch, which the firm purchased in 2009, the people said.
Countrywide Case
Countrywide was found liable of FIRREA violations on Oct. 23 for selling bad loans to Fannie Mae and Freddie Mac. The amount of the civil penalty the bank will have to pay will be determined later.
JPMorgan, the biggest U.S. bank, reached a tentative $13 billion agreement with the Justice Department last week to end civil claims over mortgage-bond sales, including those handled by Bear Stearns Cos. and Washington Mutual Inc. operations purchased in 2008, a person familiar with the talks said.
U.S. attorneys in California are examining potential FIRREA violations by New York-based JPMorgan that would be resolved in the settlement to end a variety of state and federal probes, a person with knowledge of the deal has said. Terms of the accord, described by people familiar with the talks, are still being negotiated.
Joe Evangelisti, a JPMorgan spokesman, declined to comment. The bank recorded a $7.2 billion charge in the third quarter to cover the cost of mounting litigation and regulatory probes, resulting in the first quarterly loss under Chief Executive Officer Jamie Dimon.
JPMorgan paying $5.1B in Fannie, Freddie deal
LINK
http://finance.yahoo.com/news/jpmorgan-paying-5-1b-fannie-210200968.html
WASHINGTON (AP) -- JPMorgan Chase has agreed to pay $5.1 billion to resolve claims that it misled Fannie Mae and Freddie Mac about risky home loans and mortgage securities that it sold them before the housing market collapsed.
The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the settlement Friday with JPMorgan, the largest U.S. bank. A broader deal with the Justice Department is still being negotiated.
JPMorgan sold $33 billion in mortgage securities to Fannie and Freddie between 2005 and 2007, according to the agency. That was the second most sold to Fannie and Freddie ahead of the crisis, behind only Bank of America. The securities soured after the housing bubble burst in 2007, losing billions in value.
The government rescued Fannie and Freddie during the financial crisis when both were on the verge of collapse. The companies received taxpayer aid totaling $187 billion. They have since become profitable and repaid $146 billion.
New York-based JPMorgan will pay about $2.74 billion to Freddie and $1.26 billion to Fannie for the securities that it sold. JPMorgan is also paying $1.1 million for home loans the bank sold to Fannie and Freddie ahead of the crisis.
JPMorgan reached a tentative agreement with the Justice Department last weekend to pay $13 billion over bad loans and mortgage securities the bank sold ahead of the crisis. The FHFA originally participated in those negotiations. It's unclear when the broader agreement will be finalized.
A good read
Link
http://www.fhfa.gov/webfiles/35/FHFACONSERVQA.pdf
FEDERAL HOUSING FINANCE AGENCY
FACT SHEET
Contact:
Corinne Russell
(202) 414-6921
Stefanie Mullin
(202) 414-6376
QUESTIONS AND ANSWERS ON CONSERVATORSHIP
Q: What is a conservatorship?
A: A conservatorship is the legal process in which a person or entity is appointed to establish control and oversight of a Company to put it in a sound and solvent condition. In a conservatorship, the powers of the Company’s directors, officers, and shareholders are transferred to the designated Conservator.
Q: What is a Conservator?
A: A Conservator is the person or entity appointed to oversee the affairs of a Company for the purpose of bringing the Company back to financial health. In this instance, the Federal Housing Finance Agency (“FHFA”) has been appointed by its Director to be the Conservator of the Company in accordance with the Federal Housing Finance Regulatory Reform Act of 2008 (Public Law 110-289) and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501, et seq., as amended) to keep the Company in a safe and solvent financial condition.
Q: How is a Conservator appointed?
A: By statute, the FHFA is appointed Conservator by its Director after the Director determines, in his discretion, that the Company is in need of reorganization or rehabilitation of its affairs.
Q: What are the goals of this conservatorship?
A: The purpose of appointing the Conservator is to preserve and conserve the Company’s assets and property and to put the Company in a sound and solvent condition. The goals of the conservatorship are to help restore confidence in the Company, enhance its capacity to fulfill its mission, and mitigate the systemic risk that has contributed directly to the instability in the current market. There is no reason for concern regarding the ongoing operations of the Company. The Company’s operation will not be impaired and business will continue without interruption.
Q: When will the conservatorship period end?
A: Upon the Director’s determination that the Conservator’s plan to restore the Company to a safe and solvent condition has been completed successfully, the Director will issue an order terminating the conservatorship. At present, there is no exact time frame that can be given as to when this conservatorship may end.
Q: What are the powers of the Conservator?
A: The FHFA, as Conservator, may take all actions necessary and appropriate to (1) put the Company in a sound and solvent condition and (2) carry on the Company’s business and preserve and conserve the assets and property of the Company.
Q: What happens upon appointment of a Conservator?
A: Once an “Order Appointing a Conservator” is signed by the Director of FHFA, the Conservator immediately succeeds to the (1) rights, titles, powers, and privileges of the Company, and any stockholder, officer, or director of such the Company with respect to the Company and its assets, and (2) title to all books, records and assets of the Company held by any other custodian or third-party. The Conservator is then charged with the duty to operate the Company.
Q: What does the Conservator do during a conservatorship?
A: The Conservator controls and directs the operations of the Company. The Conservator may (1) take over the assets of and operate the Company with all the powers of the shareholders, the directors, and the officers of the Company and conduct all business of the Company; (2) collect all obligations and money due to the Company; (3) perform all functions of the Company which are consistent with the Conservator’s appointment; (4) preserve and conserve the assets and property of the Company; and (5) contract for assistance in fulfilling any function, activity, action or duty of the Conservator.
Q: How will the Company run during the conservatorship?
A: The Company will continue to run as usual during the conservatorship. The Conservator will delegate authorities to the Company’s management to move forward with the business operations. The Conservator encourages all Company employees to continue to perform their job functions without interruption.
Q: Will the Company continue to pays its obligations during the conservatorship?
A: Yes, the Company’s obligations will be paid in the normal course of business during the Conservatorship. The Treasury Department, through a secured lending credit facility and a Senior Preferred Stock Purchase Agreement, has significantly enhanced the ability of the Company to meet its obligations. The Conservator does not anticipate that there will be any disruption in the Company’s pattern of payments or ongoing business operations.
Q: What happens to the Company’s stock during the conservatorship?
A: During the conservatorship, the Company’s stock will continue to trade. However, by statute, the powers of the stockholders are suspended until the conservatorship is terminated. Stockholders will continue to retain all rights in the stock’s financial worth; as such worth is determined by the market.
Q: Is the Company able to buy and sell investments and complete financial transactions during the conservatorship?
A: Yes, the Company’s operations continue subject to the oversight of the Conservator.
Q: What happens if the Company is liquidated?
A: Under a conservatorship, the Company is not liquidated.
Q: Can the Conservator determine to liquidate the Company?
A: The Conservator cannot make a determination to liquidate the Company, although, short of that, the Conservator has the authority to run the company in whatever way will best achieve the Conservator’s goals (discussed above). However, assuming a statutory ground exists and the Director of FHFA determines that the financial condition of the company requires it, the Director does have the discretion to place any regulated entity, including the Company, into receivership. Receivership is a statutory process for the liquidation of a regulated entity. There are no plans to liquidate the Company.
Q: Can the Company be dissolved?
A: Although the company can be liquidated as explained above, by statute the charter of the Company must be transferred to a new entity and can only be dissolved by an Act of Congress.
looks like 1.77 close...nice move up...HOD was also 1.78
nice day today....lets hope the move up continues
You guys need to read this article...one among many outlining the current situation.
http://www.cbsnews.com/8301-505145_162-57585689/how-much-do-fannie-and-freddie-still-owe-us/
Be mindful of what the current situation is at this point. Has fannie and freddie paid back money owed? not according to the "agreement".
That is why the multitude of lawsuits filed contesting the legality of the "agreement", among a variety of more complex decisions and actions taken by the FEDS.
We are all hoping the law regarding the basic functions of the conservatorship are upheld, and that fannie and Freddie are treated as they should have been from the beginning.
If this happens...indeed we may quickly see the pps move into the double digit range.