Actually, the preferred issues have a higher legal grounds to file suit, but a win would apply to commons too. Commons are the owners that give a first return position upon liquidation to preferred for capital infusion without diluting commons. In the event of liquidation preferred get paid first but commons get all the left overs which would be much more than what is due the preferred with the profits, and 3.5 trillion in assets.
It's hard to imagine a Judge tearing the baby into pieces to satisfy a legal argument regarding the full profit sweep, or the legality of the seizure in the first place.
After all, the rule of law is rather black & white on the matter so it would be ludicrous for the Judge to find in favor of the rule of law then shirk the rule of law all in one ruling.
IMO, the heavier investment into the preferred issue is what Berkowitz would do for conservative investment reasons even if the GSEs were private, and never in conservatorship.
People are reading to much into his strategy IMO. After all, a guy like Berkowitz has to think in terms longer than the foreseeable future of 3 years when plunking down billions. The fact that he's putting any amount into commons tells me he's most confident of a huge win.
Think about it. He can lay off the commons, and retain the preferred shares for virtually no cost to his fund when all the dust settles. Then fund his next great investment while continuing to enjoy cost free dividends moving forward.
Really, the idea of throwing commons under the bus is not a negotiable legal option. This is as much of an all or nothing play for preferred share holders as it is for the common shareholder.
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