Fannie Mae Investors Sue U.S. Over 2012 Terms of Takeover

Investors in Fannie Mae and Freddie Mac accused the U.S. of depriving them of the value of their preferred shares when it changed the terms of its takeover of the mortgage finance companies in August 2012.

The complaint, filed in the U.S. Court of Federal Claims by two investors represented by Boies Schiller & Flexner LLP and seeking class-action status, is at least the fourth lawsuit challenging aspects of the bailout.

Fannie Mae and Freddie Mac paid dividends of 10% on shares held by the government until this year, when they were required to turn over all profit to the U.S. Treasury.

“The Treasury’s blatant appropriation of the economic rights previously held by the owners of the junior preferred stock was a taking of private property without payment of just compensation,” lawyers for Joseph Cacciapelle and Melvin Bareiss wrote in the complaint.

Adam Hodge, a spokesman for Treasury, said he hadn’t seen the lawsuit and didn’t have an immediate comment on it. In response to a similar suit filed July 9, Treasury said in an emailed statement that U.S. taxpayers provided more than $187 billion to maintain the solvency of Fannie Mae and Freddie Mac and protect the broader economy. “We fully believe our actions have been lawful and appropriate,” according to the statement.

An earlier class-action suit fixed the point of harm to shareholders at September 2008, when the government placed Fannie Mae and Freddie Mac into conservatorship under the control of the Federal Housing Finance Agency.

Two other cases, one filed in the Court of Claims July 9 by Fairholme Funds Inc., a mutual fund headed by Bruce Berkowitz, and another filed July 7 by hedge fund Perry Capital LLC in U.S. District Court in Washington, challenge the August 2012 change in the terms of the government takeover.

A filing in the Cacciapelle case identified similarities in the two other cases filed in the Court of Claims and asked that they be assigned to the same judge.