Fannie Mae-No Politics (FNMA)

[obiterdictum]

warrant is an illegal exaction”

Hi Obi, would like your opinion on:

In the AIG Starr v. United States, Case 1:11-cv-00779-TCW Document 443 https://online.wsj.com/public/resources/documents/StarrvUS06152015.pdf

Judge Wheeler ruled the warrant is an illegal exaction,(details below) later this case was overruled because of lack of standing and AIG did not participate in the suit, and then the supreme court refused to hear the case, but the initial order of Judge Wheeler was not overruled and keeps applying to FnF, so it is impossible for the government to even own, let alone execute the warrant, these legal texts cannot be misunderstood right?

Ano, let's narrow it down to specifics.

is it Judge Wheeler's opinion about an illegal exaction by a warrant being converted into Senior C preferred shares with voting rights in a deal made by the Federal Reserve Bank of New York under the Federal Reserve Act 13(3) with AIG that was not disagreed with by the Court of Appeals for the Federal District?

yes, this opinion clearly states “the government” (doesn’t matter who specifically as all run under the same umbrella with more or less the same powers) in several paragraphs with a dozen of lawsuits as backup

It does matter ano. "Government" does not mean the entire US Government and all of its agencies. "Government" in the AIG litigation mainly refers to the Federal Reserve Bank of NY and to a specific statute: Section 13(3) of the Federal Reserve Act, 12 U.S.C. § 343 (2006).

The main issues in the case are: (1) whether the Federal Reserve Bank of New York possessed the legal authority to acquire a borrower’s equity when making a loan under Section 13(3) of the Federal Reserve Act, 12 U.S.C. § 343 (2006); and (2) whether there could legally be a taking without just compensation of AIG’s equity under the Fifth Amendment where AIG’s Board of Directors voted on September 16, 2008 to accept the Government’s proposed terms. Appendix, p. 87a - https://www.scotusblog.com/wp-content/uploads/2017/10/17-540-petition.pdf

, it is not allowed by statue to take ownership and or voting right of a company,

The statute and relevant statute associations referred to is Section 13(3) of the Federal Reserve Act, 12 U.S.C. § 343 (2006). See Appendix C, pp. 219a-220a - https://www.scotusblog.com/wp-content/uploads/2017/10/17-540-petition.pdf

Does Section 13(3) of the Federal Reserve Act, 12 U.S.C. § 343 (2006) apply to all government agencies?

and indeed although broad powers are allowed a takeover is not allowed in HERA nor any other statue that I’m aware of, so it looks like the basics although overruled in this case, still apply to our case

Takeovers was not the question asked. What was asked was:

...the initial order of Judge Wheeler was not overruled and keeps applying to FnF, so it is impossible for the government to even own, let alone execute the warrant, these legal texts cannot be misunderstood right?

1. HERA specifically allows the US Treasury (not FHFA) to purchase and receive GSE issued securities (Senior Preferred Stock and Warrants to purchase common stock) from the GSEs as consideration for providing [initially] access to $200 billion in funding as detailed in the SPSPAs. The statute allowing purchase, receipt and use is: 12 USC 1719(g) - https://www.law.cornell.edu/uscode/text/12/1719 and 12 USC 1455(l) - https://www.law.cornell.edu/uscode/text/12/1455. -

2. An examination of the Certificate of Designation of the Senior Preferred Stock and the Warrants to purchase common stock clearly reveals that neither provide voting rights. See below.

3. Since the warrants to purchase common stock have not been exercised, Treasury neither owns nor is in control of 79.9% of the common stock or the companies. Speculative discussion of government takeovers by exercising warrants to purchase GSE common stock is rendered moot at this point.

4. Further, Treasury, as seen from past actions, has received warrants for common stock as consideration. Treasurydisposes of such warrants through repurchases, public warrant auctions and private placement auctions. See: https://www.treasury.gov/initiatives/financial-stability/reports/Documents/December%202012%20Warrant%20Disposition%20Report.pdf

With the past as a guide, Treasury (not FHFA) disposes of warrants for common stock without owning common stock or having voting rights in companies. The exercise of warrants for GSE common stock is not an actual issue at the moment.

FHFA did not receive congressional power to takeover FnF with voting power, it clearly is a steps outside conservatorship too as the only mandate would be to conserve and preserve

That is correct. Voting power is not mentioned among the general powers of the conservator. Neither the FHFA nor Treasury have common stock voting power.

HERA, did grant specific powers to FHFA, as conservator or receiver, that allow FHFA to "takeover" the GSEs and does not limit the FHFA to a single power to conserve and preserve:

(2) GENERAL POWERS.—

(A) SUCCESSOR TO REGULATED ENTITY.—The Agency 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; and
(ii) title to the books, records, and assets of any other legal custodian of such regulated entity.

(B) OPERATE THE REGULATED ENTITY.—The Agency may, as conservator or receiver—
(i) take over the assets of and operate the regulated entity with all the powers of the shareholders, the directors, and the officers of the regulated entity and conduct all business of the regulated entity;
(ii) collect all obligations and money due the regulated entity;
(iii) perform all functions of the regulated entity in the name of the regulated entity which are consistent with the appointment as conservator or receiver;
(iv) preserve and conserve the assets and property of the regulated entity; and
(v) provide by contract for assistance in fulfilling any function, activity, action, or duty of the Agency as conservator or receiver. 12 USC 4617(b)(2) - https://www.law.cornell.edu/uscode/text/12/4617

For example, the Court of Appeals for the Federal District in Note 25 Appendix A, p. 41a states:

In view of our decision that Starr lacks direct standing to pursue the Equity Claims, there is no need for further proceedings on remand regarding the merits of those claims. https://www.scotusblog.com/wp-content/uploads/2017/10/17-540-petition.pdf

Of course the government is in a difficult position but lack of standing doesn’t resolve the issue on hand, in our case we do have standing so the same basics apply to us here, the government cannot force a company to voluntary agree to a 79.9% giveaway of the company, as that is not the job of a conservator statue and as judge wheeler said “There is no law permitting the Federal Reserve to take over a company and run its business in the commercial world as consideration for a loan.”

Two points to consider:

1) As mentioned above it was the Federal Reserve Bank of NY that exercised warrants to obtain Senior C preferred shares with voting rights under Section 13(3) of the Federal Reserve Act, 12 U.S.C. § 343 (2006). Neither the statute nor the circumstance (exercising warrants) applies to FHFA or Treasury.

12 USC 1719(g) and 12 USC 1455(l) allow Treasury (not FHFA) to purchase and hold securities: Senior Preferred Stock and warrants to purchase common GSE common stock. The future disposition of the Senior Preferred Stock and warrants is unknown. Treasury's past actions reveal that Treasury disposes of warrants via public warrant auctions and private placement auctions.

There are no voting rights attached to either the Senior Preferred Stock or warrants to purchase common stock.

And so, 2) a 79.9% giveaway of the GSEs has not occurred. Shareholders, not Treasury or FHFA, own 100% of the GSEs. The uncertainty about the future disposition of the Senior Preferred Stock and Warrants is an investor concern and a factor among many that strangles share price increases.

so it is impossible for the government to even own, let alone execute the warrant, these legal texts cannot be misunderstood right?

Is it impossible for the US Government to own and execute a specific warrant or own and execute warrants in general?

What law makes either case an impossible one?

The statue of a conservatorship does not allow (gave permission to) the treasury to own warrants that entitle them to more than the initial loan

Two facts:

1) 12 USC 1719(g) and 12 USC 1455(l) allow Treasury (not FHFA) to purchase and hold securities, equity or debt. Both Senior Preferred Stock and warrants to purchase common GSE common stock are securities.

2) Treasury did not make a loan to the GSEs. There is no principal amount, interest to be paid on the principal, a term, an amortization schedule, etc. A loan is not involved. The financial arrangements made were the Senior Preferred Stock Purchase Agreements (SPSPAs).

The Government in the AIG case is the Federal Reserve Bank of New York, not the entire US Government with all its various agencies.

All various agencies are bound by the powers congress gave them, and nowhere it is allowed to takeover ownership of a company in conservatorship, conservatorship is about giving loans and payback, not ownership

The US Government has taken over and nationalized privately-owned companies in the past.

The GSEs are federally-chartered, 100% private shareholder-owned companies. The FHFA or Treasury do not own the GSEs. In the case of the GSEs, no loans have been granted by the FHFA or Treasury. The GSEs are private companies and are not part of the US Budget. See: https://www.govinfo.gov/content/pkg/BUDGET-2019-APP/pdf/BUDGET-2019-APP-2-4.pdf

The AIG case is related specifically to the assertion that "there is nothing in the Federal Reserve Act that authorized the Federal Reserve Bank of New York (FRBNY) to demand equity or voting control as consideration for a Section 13(3) loan."

The same rule applies in our case, HERA did not authorize the FHFA to demand equity or voting control as consideration in the SPSPA.

That statute does not apply to FHFA or the GSEs. FHFA did not demand equity or voting control as consideration in the SPSPAs. HERA specifically allows the US Treasury (not FHFA) to purchase and receive GSE issued securities (Senior Preferred Stock and Warrants to purchase common stock) from the GSEs as consideration for providing [initially] access to $200 billion in funding as detailed in the SPSPAs terms, conditions, and covenants. The statutes allowing the purchase, receipt, and use of these securities is: 12 USC 1719(g) and 12 USC 1455(l)

So the question to ask and answer is: Does the Federal Reserve Act apply to the actions of FHFA that are statutorily governed by HERA?

Maybe it does, maybe it doesn’t , but for sure the government did not authorize FHFA to takeover FnF

It does not apply. HERA governs FHFA. The Federal Reserve Act governs the Federal Reserve Bank of NY.

Concerning takeovers, see above on the General Powers granted by HERA to the FHFA.

So all in all, if you take the rule of law, it looks like FHFA cannot execute or even own in that matter, the warrant, it is illegal as conservator to own(force a company) and take the voluntary 79.9% warrant in consideration of a loan, Right?

No. FHFA has never owned and presently does not own warrants to purchase 79.9% of GSE common stock. FHFA, as conservator, does not own the GSEs and has not granted or administered a loan to the GSEs. Treasury legally holds Senior Preferred Stock and Warrants to purchase common stock and has done so through the Senior Preferred Stock Purchase Agreements (SPSPAs) that spell out the terms and conditions under which Treasury provides cash monies to the GSEs. No loans are involved.

Additional Sources:
Fannie Mae Warrant to Purchase Common Stock
http://www.treasury.gov/press-center/press-releases/Documents/warrantfnm3.pdf

Freddie Mac Warrant to Purchase Common Stock
http://www.treasury.gov/press-center/press-releases/Documents/warrantfrec.pdf

Fannie Mae Preferred Stock Certificate
https://www.treasury.gov/press-center/press-releases/Documents/certificatefnm2.pdf

Freddie Mac Preferred Stock Certificate
https://www.treasury.gov/press-center/press-releases/Documents/certificatefreb.pdf