"While the $1.6 billion amount reflects the drop in share prices on the day after the Net Worth Sweep was
announced, the only way in which the share prices after the Net Worth Sweep could have any
positive value is based on the market’s speculation (or conviction) that something as drastic as the
Net Worth Sweep could not possibly stay in effect. This must be the case, because so long as the
Net Worth Sweep remains in effect, it is literally impossible for any money to be distributed to
private shareholders, either in dividends or as liquidation proceeds. It’s impossible – period. Thus,
any positive value that Plaintiffs’ shares have after the Net Worth Sweep reflects (a) the market’s
judgment about whether the Net Worth Sweep will remain in effect, or instead will be invalidated
by litigation or otherwise (or trigger compensation of some kind, such as through this lawsuit),
plus (b) the market’s assessment of the value the shares would have if the Net Worth Sweep did
go away (discounted by the probability of that not happening).
Given that the market price for the GSE shares after the Net Worth Sweep reflects the
market’s judgment about the likelihood of the Net Worth Sweep being overturned through
litigation or otherwise, that price cannot be used to reduce the damages that seek to measure the
harm inflicted by the Net Worth Sweep. Rather, if share prices are to be the only way that damages
may be measured, a better use of them would be to measure the market capitalization reflecting
share price on August 16, 2012 – the day before the Net Worth Sweep was announced – and to
treat that as the measurement of the expected future dividends to the various classes as of that date.
Plaintiffs believe the market capitalization based on share price grossly understates that value, but
it is at least a minimum measure. The Net Worth Sweep eliminated the ability of Plaintiffs to ever
receive those dividends, and thus the August 16 market price represents a minimum valuation of
the harm caused by the Net Worth Sweep.
The foregoing analysis is an important part of any “lost value” analysis that is based on
share prices. It will naturally be a part of Dr. Mason’s testimony on the “lost value” measure of
damages, which he discussed in his report and which he concluded would understate the measure
of harm. Plaintiffs simply ask that Dr. Mason be permitted the right to serve a short rebuttal report
that clarifies the scope of this analysis. That will avoid any disputes about the scope of his
testimony at trial. It will ensure that the record reflects that Defendants were given full and fair
notice of the scope of the “lost value” theory that is being presented at trial, an opportunity to
depose Dr. Mason on that measure of damages, and to submit their own supplemental report if
they wish."
