Agree but Solving mysteries is difficult and making sense of a lot of information is testing
We first look at a few facts presented to get the scope of thinking:
1) Plaintiffs prayer for relief is they want the 3th amendment voided 2) Plaintiffs and Defendants think the “for cause” removal is unconstitutional 3) The 5th circuit holds that “for cause” U.S.C. § 4512(b)(2) violates the Constitution’s separation-of-powers principles 4) Up to date 40 lawsuits are filed 30 are pending and 10 are dismissed because of 12 U.S.C. § 4617(f).(no court may take any action) see post 609567 for pending and post 609728 for the dismissed cases 5) With 12 U.S.C. § 4617(b)(2)(J) the FHFA can act in the best interest of itself and violates thereby their own statute to “preserve and conserve” 12 U.S. Code §?4617(2)(B)(iv) 6) So far Fannie and Freddie are obligated to pay all their profits to treasury in perpetually, this lately changed that they can keep the profits but it still increases their obligations to treasury 7) Sweeney states: “Otherwise stated, Fannie was not in financial distress or otherwise at risk of insolvency. Id. ¶¶ 47-51, 54.” https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2013cv0608-74-0 8) The warrant is one step away also according to Sweeney one step away 9) Oral arguments like mob and death grip, also give away some issues that are surfacing https://www.valueplays.net/wp-content/uploads/Fairholme-Condensed-Transcript-1.pdf
Then we must recognize there are 2 groups of lawsuits: 1) The groups that filed in a District Court 2) The groups that filed in US Court of Federal Claims
Under these groups we have: 1) Common and Preferred stock holders 2) Direct and Derivative claims & 3) Class action
Then after these facts we can conclude: 1) The company was solvent at time conservatorship was implemented 2) The funds were sufficient according to regulation 3) The FHFA did not conserve and preserve 4) The government has been fighting shareholders
Then it raises other questions as: 1) The Government lacks authority to takeover adequately chaptalized companies 2) The Government takes property and does not want to pay for that taking 3) The Government is changing the rules as we go 4) The Government made a deal with itself (when declared unconstitutional in Collins)
Then we have 2 types of agencies: 1) Independent agencies that funds itself must be run by a multimember board 2) Executive agency controlled by the president and are funded thru the appropriations act
Then in settlement negotiations being this far down the road I cannot imagine shareholders would give in a dime on their prayer for relief, what however is likely is that the “for cause” will soon be ruled unconstitutional in the Collins case, and be stricken down from HERA, however, deleting things from HERA is difficult, as the whole document is based on the fact the FHFA is an “independent agency” suddenly the lines in HERA that give the power to the director must be replaced with either a “multimember board” which can only regulate on rules (not on “suspect” as the current director does) so most of these lines need to be deleted or it can stay in HERA the way it is but will have a serious issue on “Fiduciary duty” and “Conflict of interest” as an executive agency under HUD and simultaneously operating Ginnie Mae Then we have 2 options 1) Go back to a Lame Duck Regulator (multimember board, but good for shareholders) 2) Go back to current FHFA (single director, receive ~3B back from FHFA, and fiduciary duty comes back into play, good for shareholders)
Then Judge Sweeney and fairholme are afraid for double recovery (oral arguments last nov 2019)(Sweeney and Lamberth direct versus derivative) and think Sweeney is going to give derivative claims relief and Lamberth is going to give the direct claims relief
Then MR. THOMPSON is saying : “Well, and I’m going to get to……Your Honor…..I will just point out that that the thorny issues -- one last point -- on why the issues could be thorny is if the Collins case does not decide and neither does Bhatti or Rock, the Government has said in their Treasury report that what they might do is take the liquidation preference and convert it into common. And if they do that, that will be massively dilutive to the common, who will continue to have a permanent taking claim, but a complete taking claim, but it might well restore the junior preferreds, and then they would have a temporary taking claim. So it could --this could play out in a multiplicity of different ways, which will have ramifications for who is entitled to a check at the end of the day in this Court.(federal claims court)
Then : The Court of Federal Claims and the Court of Appeals for the Federal Circuit have recognized that only one thing matters for a takings case and that is the value of the property on the date of the alleged taking. The date matters from an economic impact
Then to make sense of all the above we can conclude 1) Collins needs to be decided (“for cause” or “at will”) 2) Washington Federal needs to be decided not settled to exclude new lawsuits from old shareholders 3) Then the other 38 lawsuits need to be settled with the different demands among the Common, Preferred, Direct, Derivative, and class action lawsuit claims
Then for most lawsuits to go away it needs to be recognized that either it was lawful or unlawful to enter into conservatorship, to prevent future wrongdoing and to calm the markets as this might happen again in the future then if that is established in Collins and Washington Federal we have 4 options
1) For cause is illegal(likely) 2) For cause is legal (unlikely as it conflicts the constitution separation of powers) 3) The conservatorship was legal (with proof on paper they were insolvent) 4) The conservatorship is not legal (Likely because the government doesn’t want to proof anything and withhold documents and keeps on fighting)
Then we know Sweeney has 124B (60/40) so that is 74B for Fannie and 50B for Freddie
Then depending on the outcome of the court we have multiple situations but my best guess is:
For cause is ruled unconstitutional in Collins, the FHFA head stays, as regulators cannot work with multimember boards in times of decision making, so FHFA needs to return all assessments as it no longer is independent, From Sweeney 74B+ is rewarded, the stock needs to be relisted, pref holders will be paid missed dividends as otherwise future pref offerings will have a problem, common holder dividends are reinstalled, the conservatorship is abandoned, the CSP/ CSS debacle funds will be returned (2B) and will be abandoned by Fannie and Freddie as there is no need to run a company that nobody uses in the foreseeable future, and since the capital requirement are so high, FHFA makes clear there will be no competitors in the foreseeable future. The 4.2 basis points affordable housing is a problem as the capital rule is higher so the 4.2BP needs to be lowered accordingly as the piece of the pie is not endless The warrant needs to be voided as nothing was paid for it and the companies never would voluntary agree to such a thing in solvent condition nor does their Duty of Candor allow such a thing The liquidation preference needs to be returned in full or partial depending on rulings, but since the board agreed it probably will be partial as “sweeney states 124B” Damages needs to be paid for the wrongdoing when conservatorship started fannie traded at $ 6.19, with compensatory damages that is (now trading at ~$2.00)= $4.19 and with punitive damages max of 4 times compensatory damages that is $4.19*4= $16.76+4.19= give or take $ 20.- per share in damages (and it will be the max IMO as this is a 12 years saga) then The new capital rule is too difficult and will have serious problems like above mentioned so it will be hard to implement without serious adjustment or does not make it at all the new capital rule is naïve and ill-considered the more difficult you make the rules the more vulnerable the system gets as nobody has any idea or even can calculate how the current state is beside the unpredictable FHFA, but it sets a precedent nobody can ever enter again into this market, which in the long run is good for shareholders of course
Then will the dismiss of the jones days plaintiff advance common shareholders ? The problem with dismissing the lawsuits is not solving by dismissing the case, the judges claim they have no jurisdiction, but that is the problem in “for cause” too, the 3 branches of the government should all be able to control each other, so it is illegal per the constitution to veto the court, and the dismissed cases are not gone, but only temporary on hold
the 3 branches that control each other: 1) Legislative Power (the power to pass laws) to Congress 2) Executive Power (the power to administer the laws) to the President 3) Judicial Power (the power to interpret and enforce the laws) to the Courts
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