A judge rejected a bid by the U.S. to put on hold a series of suits by Fairholme Funds and other investors challenging the diversion of profits from Freddie Mac and Fannie Mae to the Treasury.
The government in October asked U.S. Court of Federal Claims Judge Margaret Sweeney to delay the cases in her court until appeals of dismissals of a similar group of cases in district court in Washington are resolved.
Sweeney on Wednesday said Fairholme and other investors may continue to gather information for cases in her court while the appeals play out, according to Nicole Navas, a spokeswoman for the Justice Department, and Charles Cooper, a lawyer for the investors.
Fannie Mae and Freddie Mac, which were seized by regulators in 2008 as they neared bankruptcy, package mortgages into guaranteed bonds. They required $187.5 billion in taxpayer funds to stay afloat before they returned to profitability when the housing market rebounded.
At issue in the suits in both courts is a change in the bailout agreement in 2012 that sent the companies’ profits to the Treasury.
Fairholme and other investors sued for breach of contract in district court saying they were promised dividends and liquidation preferences, and protesting what they called an illegal "taking" under the Fifth Amendment to the U.S. Constitution.
U.S. District Judge Royce Lamberth in September rejected their claims, finding that the government is allowed under the 2012 amendment to the companies’ bailout agreements to sweep "nearly all" profits from Fannie Mae and Freddie Mac to the Treasury.
Lamberth's ruling is being challenged before the U.S. Court of Appeals in Washington.
Fairholme and several other investor groups that sued in district court also filed complaints, focusing on an illegal takings argument, in the Court of Federal Claims, which hears cases for money damages against the government.
In addition to Fairholme, headed by Bruce Berkowitz, other high-profile investors suing over the profit diversion in one or both courts include Bill Ackman's Pershing Square Capital Management and Perry Capital.
Sweeney is overseeing at least nine cases challenging the changed bailout agreement. Several have been delayed pending developments in the Fairholme case.
