Berman Suit - more
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84. By September 4, 2008, if not earlier, Government officials had decided to impose conservatorships upon Fannie Mae and Freddie Mac, come hell or high water. As Secretary Paulson told President Bush on that date, “[w]e’re going to move quickly and take them by surprise. The first sound they’ll hear is their heads hitting the floor.”
85. The following day, September 5, 2008, Director Lockhart and Secretary Paulson summoned Fannie Mae’s and Freddie Mac’s CEOs, Daniel Mudd and Richard Syron, respectively, to a meeting at which Mudd and Syron were told, in no uncertain terms, that the Companies would be placed in conservatorship. Secretary Paulson and Director Lockhart emphasized that the Companies had no other option, and that they expected the Companies’ boards of directors to comply. Paulson misleadingly told them: “We have the grounds to do this on an involuntary basis, and we will go that course if needed.”
86. Secretary Paulson regarded his role in the meetings with Mudd and Syron as follows: “My role in these meetings was always to say, ‘This is going to happen. This is about the United States of America, our capital markets, our economy. Be part of the solution. It won’t be good for anyone if you don’t consent. I need to know this evening. Your lawyers can spend a lot of time – then we won’t get there, and then it will be involuntary.’”
87. Further, HERA immunized the Companies’ directors against liability for consenting to the appointment of the FHFA as conservator. See 12 U.S.C. § 4617(a)(6). The Government played on this immunity to persuade the Companies’ management and directors to accede to the Government’s demands, despite the absence of any legal authority to impose the conservatorships, at the expense of the Companies’ preferred and common shareholders.
88. Notably, when asked how he allegedly persuaded the boards of Fannie Mae and Freddie Mac to consent to the conservatorships, Secretary Paulson stated that the boards were made by him, Director Lockhart, and Chairman Bernanke to understand that the decision was not just about the Companies’ needs, rather it “goes beyond their individual situations” because “this is about our capital markets, this is about the economy.” ""
89. In short, the Government – through threats, misrepresentations, and undue pressure – coerced the Companies’ directors to breach their fiduciary duties to their shareholders so that the Government could take control of the Companies and further its public policy goals. Any purported consent given by any of the Companies’ directors to the imposition of the conservatorships was thus improperly given and invalid.
90. Thus, none of twelve grounds for appointing the FHFA as conservator set forth in section 4617(a)(3)(I) was satisfied with respect to either Fannie Mae or Freddie Mac.
