Does the Conservator have Fiduciary Responsibilities to the GSE's and it` Shareholders......Absolutely!
Mar. 11, 2016.......
Ninth Circuit Provides New Ammunition To Fannie And Freddie Shareholders
[ Google the above header....Ninth Circuit.....]
By the second quarter of 2013, Treasury had dealt itself $60 billion more than the $4.7 billion it would have enjoyed under the original agreement with the GSEs. Under the Third Amendment, the GSEs’ shareholders have not seen a penny of their dividends. To be sure, the federal government is a shareholder in the GSEs; but it is no more the owner of 100 percent of their stock than it is entitled to 100 percent of their profits.
Now that the Ninth Circuit has held that the GSEs are private companies and thus subject to ordinary rules of corporate law, shareholders have a basis – independent of the HERA conservatorship – upon which to challenge the boards’ conduct. Namely, shareholders may sue the GSEs’ boards for breach of the fiduciary obligations imposed by state law. For example, under the law of the state of Delaware — the state in which Fannie Mae was originally incorporated and whose precedents many other jurisdictions follow with respect to corporate fiduciary law – corporate officers owe a company’s shareholders duties of loyalty and care that are enforceable in court. A fiduciary is held to an even higher standard of scrutiny when, like Treasury, it receives a benefit to the exclusion of and at the expense of its intended beneficiary.
By ruling that Fannie and Freddie are private companies, the Ninth Circuit has opened the door for shareholders to hold the companies’ boards accountable for their breach of these obligations. If the profit sweep does not amount to self-dealing by a fiduciary, it is difficult to imagine what would. Government accountability is on the line. With its latest holding on the nature of the GSEs as private companies, the Ninth Circuit has come one step closer to putting an end to the Treasury Department’s charade.
