Fannie Mae-No Politics (FNMA)

[FOFreddie]

Hi Rodney5

Here is an excerpt of the Mike Kelly Complaint:

"In September 2008, the Government destroyed these investment-backed
expectations when it coerced GSE management to “acquiesce” to a conservatorship under the
Housing and Economic Recovery Act of 2008 (“HERA”) and took for the benefit of the United
States the rights and protections that ownership of the preferred shares had guaranteed. The
Department of Treasury then obtained the exclusive right to decide when to terminate the
conservatorship and has in effect made the conservatorship perpetual. In fact, the conservatorship
continues today, almost 15 years later.
6. Through this forced “nationalization” of the GSEs, the GSEs stopped operating for
the benefit of their shareholders, and the Government took for a public use the rights, protections,
and duties that adhered to the ownership of the GSE preferred shares. As a result of this taking,
the stock price of the preferred shares plummeted and any investment of a bank’s Tier 1 Capital
vanished. The ultimate consequence of this Government action forced the FBOP Subsidiaries into
receivership. In short order, the Government took all of Plaintiffs’ assets. Plaintiffs demand just
compensation for this Government action under the takings clause of the Fifth Amendment to the
United States Constitution.
7. The FBOP Subsidiaries and River Capital also seek damages because the
Government breached the duties of good faith and fair dealing implied in the GSEs’ stock
certificates and bylaws. Implied in those contracts are promises that the GSEs would be operated
by fiduciaries who would manage the GSEs to increase shareholder value. By coercing the GSEs
into the conservatorship, ensuring that the conservatorships would be run perpetually for the
Case 1:21-cv-01949-KCD Document 25-1 Filed 03/06/23 Page 5 of 71
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benefit of the United States, and taking actions to the detriment of the shareholders, the
Government was put in privity with the FBOP Subsidiaries and River Capital under the stock
certificates and bylaws. The Government breached the implied covenants by operating the GSEs
for the benefit of the United States and taking action that subordinated shareholder rights and
protections to the general public.
8. Finally, Plaintiffs seek damages for the Government’s breach of an implied
regulatory contract. The only reason the FBOP Subsidiaries and River Capital purchased the GSE
preferred shares was because the Government promised that those investments were a safe use of
Tier 1 Capital, that 100% of Tier 1 Capital could be used to purchase GSE preferred shares, and
that the dividends earned from ownership of the GSE preferred shares would enjoy beneficial tax
treatment. The Government made these promises as part of an offer for the banks to recapitalize
the GSEs. Implied in that offer and in those promises was that the Government would pass no law
or take no action that would render the value of the GSE preferred shares worthless, extinguish the
associated Tier 1 Capital, and result in the regulatory undercapitalization of the banks. By using
HERA and coercing the conservatorship, by allowing Treasury to decide when the conservatorship
ends (in effect, making it perpetual), and by the actions the conservator took, the Government
altered the regulatory landscape to such a degree that it could no longer perform its promise that
the investment in the GSEs’ preferred shares were a safe use of all of Plaintiffs’ Tier 1 Capital.
Because the Government took the actions that made its regulatory promises impossible to honor,
the Government bore the risk if it rendered its performance impossible. Plaintiffs accordingly seek
damages for the harm caused to them by the Government’s actions that made their GSE
investments a detrimental use of their Tier 1 Capital and an unsafe investment"

https://www.glenbradford.com/2023/03/fnma-fanniegate-1271/