FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[Guest cherzeca]

I think I asked this before, but just in case you legal types want to think about it: what is the "maturity" distribution of court decisions including appeals? The same way you look at debt maturities, I'd say you should look at court decision maturities and possible appeals all the way (to Supreme Court?). Then you can build up the best-cases (without settlements which can't be guessed), average cases and worst cases.

 

Very roughly, if your worst case maturity is ~3 years, this is possibly great investment. If it's 5 years, it's becoming so so. If it's 8-10 years, then it's not that good (and also adding risk of any financial complications during that timeframe - although I am not a lawyer and I can't evaluate how these would affect judgement of actions preceding the complications).

 

i'll have a go at this, and others can follow.

 

i view the resolution process through the lens of an investor.  i believe the market will react very strongly if perry is reversed, and somewhat less strongly if it is vacated and sent back to district court for fact finding. even if reversed, perry would be sent back down for the district court to fashion a remedy.  so even if appeals court reverses say by fall, you may not have the district court order a remedy until early 2017.

 

even if govt loses the appeal, the govt will ask for an en banc hearing of the court of appeals (unless it is 3-0 against, if i recollect correctly), and will ask for cert to SCOTUS, which may be denied.

 

but my point is that you should have an actionable exit point at the time the cir ct reverses or vacates, and i would be surprised if the market would not react strongly until all appeals have been exhausted.  so your maturity analysis is subject to "prepayment" if you will.

[Jurgis]

I think I asked this before, but just in case you legal types want to think about it: what is the "maturity" distribution of court decisions including appeals? The same way you look at debt maturities, I'd say you should look at court decision maturities and possible appeals all the way (to Supreme Court?). Then you can build up the best-cases (without settlements which can't be guessed), average cases and worst cases.

 

Very roughly, if your worst case maturity is ~3 years, this is possibly great investment. If it's 5 years, it's becoming so so. If it's 8-10 years, then it's not that good (and also adding risk of any financial complications during that timeframe - although I am not a lawyer and I can't evaluate how these would affect judgement of actions preceding the complications).

 

i'll have a go at this, and others can follow.

 

i view the resolution process through the lens of an investor.  i believe the market will react very strongly if perry is reversed, and somewhat less strongly if it is vacated and sent back to district court for fact finding. even if reversed, perry would be sent back down for the district court to fashion a remedy.  so even if appeals court reverses say by fall, you may not have the district court order a remedy until early 2017.

 

even if govt loses the appeal, the govt will ask for an en banc hearing of the court of appeals (unless it is 3-0 against, if i recollect correctly), and will ask for cert to SCOTUS, which may be denied.

 

but my point is that you should have an actionable exit point at the time the cir ct reverses or vacates, and i would be surprised if the market would not react strongly until all appeals have been exhausted.  so your maturity analysis is subject to "prepayment" if you will.

 

Fair enough, but IMHO "prepayment" will be possibly 0.5 (0.5 par for prefs, for example) of the full win. So, yeah, you get shorter timeframe (possibly), but you also likely get smaller gain.

 

BTW, I'm using a very simple arbitrage model on this:

 

Current price: 4.5 Probabilities

Target price 50 45.5 0.15 6.825

Loss price         0 4.5 0.85 3.825

3

Time period in years 4 18

Gain in annualized percents: 0.166666667

 

Note that this assumes 15% probability of success, which is IMO quite low, 4 years of workout, par at workout. It still gives ~16% annualized return.

 

But see what happens if I cut the time to 1.5 years, $20 at workout (and cut loss to $2 instead of $0), keeping the same probability:

 

Current price: 4.5 Probabilities

Target price 20 15.5 0.15 2.325

Loss price 2 2.5         0.85 2.125

0.2

Time period in years 1.5 6.75

Gain in annualized percents: 0.02962963

 

The estimated return goes down to 3% annualized.

 

This just shows that partial "prepayment" is not that great scenario for investors.

 

BTW, if we change 4 years to 8 years in the original calculation, the expected return drops to 8%. So time matters. Though, of course, probabilities matter way more (if probability of success is 20%, estimated return is 16% even if we have to wait 8 years).

 

For everyone: I am not claiming that 15% probability is right, you can plug in your own probabilities, timelines, prices, etc. ;)

[merkhet]

In both situations, the main goal is to avoid embarrassment. Partially for ego purposes and partially because embarrassment can be used by your opponent as a political cudgel.

 

In Einrhorn's case, they avoided embarrassment by trying to sweep things under the rug. They've done the same in this case, but faced with the threat of a reveal of evidence or a loss, the face saving then works the other way. But we'll see.

 

We should have a decision on the motion to compel pretty soon? It's been fully briefed for a while.

 

@Jurgis, agree with cherzeca on pre-payment, but maturity distributions for legal cases are very case specific. Unclear that's helpful on an aggregate basis.

[Guest cherzeca]

fhfa trying to consolidate all cases in DC federal district court:  http://gselinks.com/Court_Filings/Judicial_Panel/28-0001-01.pdf

 

i actually think saxton/roberts and robinson fairly could be consolidated, but jacobs should not be since it is focused more on delaware law.  i am sure fhfa would want lamberth to be assigned to the consolidated cases as well.  while convenient for fhfa and its counsel, not convenient for plaintiffs.

[doughishere]

fhfa trying to consolidate all cases in DC federal district court:  http://gselinks.com/Court_Filings/Judicial_Panel/28-0001-01.pdf

 

i actually think saxton/roberts and robinson fairly could be consolidated, but jacobs should not be since it is focused more on delaware law.  i am sure fhfa would want lamberth to be assigned to the consolidated cases as well.  while convenient for fhfa and its counsel, not convenient for plaintiffs.

 

They are just delaying

[Guest cherzeca]

consolidation would be adverse to plaintiffs for a number of reasons

[Luke 532]

fhfa trying to consolidate all cases in DC federal district court:  http://gselinks.com/Court_Filings/Judicial_Panel/28-0001-01.pdf

 

i actually think saxton/roberts and robinson fairly could be consolidated, but jacobs should not be since it is focused more on delaware law.  i am sure fhfa would want lamberth to be assigned to the consolidated cases as well.  while convenient for fhfa and its counsel, not convenient for plaintiffs.

 

Does the simple act of filing this attempt to consolidate cases put on hold the decisions of motion to dismiss & application for certification in Delaware?

[doughishere]

Chapman writes, from GSE links

 

 

"This action will take on a life of its own before the JPMDL, with the parties debating whether consolidation is appropriate and to what Court and Judge any consolidated proceeding should be transferred"

 

 

They want to delay....can't wait for the response, losers.

[Guest cherzeca]

fhfa trying to consolidate all cases in DC federal district court:  http://gselinks.com/Court_Filings/Judicial_Panel/28-0001-01.pdf

 

i actually think saxton/roberts and robinson fairly could be consolidated, but jacobs should not be since it is focused more on delaware law.  i am sure fhfa would want lamberth to be assigned to the consolidated cases as well.  while convenient for fhfa and its counsel, not convenient for plaintiffs.

 

Does the simple act of filing this attempt to consolidate cases put on hold the decisions of motion to dismiss & application for certification in Delaware?

 

good question.  i dont know.  judge sleet had before him full briefing and a request from both parties for oral argument.  it seems that jacobs should proceed, but i dont know effect of the fhfa filing with his court

[merkhet]

Jacobs stuck out like a sore thumb in that group. Reads to me like Defendants are worried and thus delaying.

[doughishere]

Jacobs stuck out like a sore thumb in that group. Reads to me like Defendants are worried and thus delaying.

 

Personally I think that any further delay should be tied to the salaries of the defendants....I bet you either get people walking of the job or this gets done mighty fast.

[muscleman]

http://fordhamlawreview.org/wp-content/uploads/assets/pdfs/Vol_78/Richards_October_2009.pdf

 

Some introduction to MDL.

 

Does anyone know the average timeline for MDL to decide?

 

 

[tthompson]

Jacobs stuck out like a sore thumb in that group. Reads to me like Defendants are worried and thus delaying.

 

Personally I think that any further delay should be tied to the salaries of the defendants....I bet you either get people walking of the job or this gets done mighty fast.

 

Perhaps at a variable rate! You could make it equal to their entire net income each year, and an increasing share of their entire net worth until it hits zero after 5 years.

[muscleman]

Found this on Investor hub. Not sure if it is true, but this guy has had direct communications with Steel in the past.

 

fast reply from Judge Steele …

***************************************************************

<usnavycmdr@gmail…6:25 PM (1 hour ago)

Good Evening Judge Steele …

Can Delaware State Law prevent this ?

Will this just be more unlimited Delays ?

**************************************************************

Steele, Myron T.

7:46 PM (14 minutes ago) to me

Frankly, this is new to me.

Sent from my iPad

*************************************************************

7:58 PM (6 minutes ago) to Myron

Thank you Judge Steele …

The Govt’s at least consistent in always attempting to dismiss or

constantly delay bringing the actual Rule of Law question to the court …

I think they pulled this latest move because they could see the

DELAWARE Case was moving expeditiously and it’s so clear that

the GSEs are ruled PRIVATE and GOVT has violated DELAWARE State Law

[muscleman]

Yesterday, I just said I was worried if too many cases are filed, there might be something unexpected going on. Now it just happened.

 

Luckily Perry and Fairholme cases are not included here, but those move far more slowly than the Delaware fast track court.  :(

[muscleman]

http://www.jpml.uscourts.gov/sites/jpml/files/Pending_MDL_Dockets_By_Type-March-15-2016.pdf

http://www.jpml.uscourts.gov/sites/jpml/files/Recently_Terminated%20MDLs-1-1-2016_to_3-15-2016.pdf

 

It seems like MDL needs many many years to decide a case? OMG. Am I looking at the right document?  :o

[muscleman]

http://www.classactionlitigation.com/mdl/faq.html#q2

 

There are a number of interesting text here.

=========================

Q. How Does a lawyer avoid having a case consolidated under multidistrict litigation rules?

 

Only federal cases may be sent to one judge under the federal multidistrict litigation statute and rules. If a lawyer wants to have a case heard in a state court, he must carefully draft the lawsuit to avoid "federal question" claims and to avoid what is known as federal "diversity jurisdiction." Under certain circumstances, a case filed in state court may be removed to federal court by a defendant. After a case is removed to federal court it is then subject to being transferred to one judge as any other federal case.

 

The MDL rules provide that when a consolidation occurs all cases of a similar nature then filed as well as all later cases that may be filed are to be sent to one judge. These later cases are call "tag-a-long" cases. Therefore, what sometimes occurs is a lawyer will file a case in a state court, have it removed to the federal court in the state where it was filed, and then, have the case subsequently transferred to a distant state. To avoid this scenario, the complaint filed in state court must assert claims over which a federal court does not have jurisdiction.

=========================

 

The Jacobs case's jurisdiction should be the state, but I am sure FHFA would argue that the jurisdiction is not in the Delaware state.

[muscleman]

https://apps.americanbar.org/litigation/committees/classactions/articles/081810-101-MDL.html

 

=============================

How does the MDL Panel decide where to transfer the cases?

While the MDL Panel has the authority to transfer the case to any district, it often selects a district with a currently pending case. The MDL Panel will usually select the most convenient forum for most of the parties and witnesses involved.

 

Do I have any say in whether my case is moved into an MDL?

Yes, but you have to act quickly. You have 20 days to file a brief—limited to 20 pages—in response to a motion to transfer. The matter will then be set on the MDL hearing docket. If the MDL Panel has already established an MDL for a particular set of cases, your case can be transferred by means of a “tag-along” notice with no hearing, unless you object within 15 days.

=============================

 

I expect plantiffs to move quickly on this. Unfortunately it didn't say how long does it take for MDL to make the decision and whether FHFA's motion to transfer automatically pauses the current cases.

 

[Luke 532]

This consolidation attempt strikes me as a desperate move to delay the Delaware case.  In light of the recent legal ruling that Fannie and Freddie are indeed private companies, it seems the government knows that it is a long shot that they'll win the Delaware case.  I'm biased, but it really seems that's the case here with this delay attempt.

[merkhet]

fhfa trying to consolidate all cases in DC federal district court:  http://gselinks.com/Court_Filings/Judicial_Panel/28-0001-01.pdf

 

i actually think saxton/roberts and robinson fairly could be consolidated, but jacobs should not be since it is focused more on delaware law.  i am sure fhfa would want lamberth to be assigned to the consolidated cases as well.  while convenient for fhfa and its counsel, not convenient for plaintiffs.

 

The MDL thing is beyond my depth. I'll have to ask around, but I think you usually consolidate into an existing court rather than move to a completely new court. Moreover, they're trying to move to DC so they can use Lamberth as precedent -- doesn't matter if they get Lamberth assigned or not.

[Guest cherzeca]

fhfa trying to consolidate all cases in DC federal district court:  http://gselinks.com/Court_Filings/Judicial_Panel/28-0001-01.pdf

 

i actually think saxton/roberts and robinson fairly could be consolidated, but jacobs should not be since it is focused more on delaware law.  i am sure fhfa would want lamberth to be assigned to the consolidated cases as well.  while convenient for fhfa and its counsel, not convenient for plaintiffs.

 

The MDL thing is beyond my depth. I'll have to ask around, but I think you usually consolidate into an existing court rather than move to a completely new court. Moreover, they're trying to move to DC so they can use Lamberth as precedent -- doesn't matter if they get Lamberth assigned or not.

 

thanks merkhet for asking around.

 

@MM jacobs has a federal question, whether fhfa exceeded statutory authority, just different from other cases since it alleges you need to examine the NWS under state law to answer the federal question

 

@merkhet  arnold & porter is being cagy, trying to consolidate all other cases with perry in dc ct, but i have never seen a consolidation of trial level cases with a case currently up on appeal...sort of goes against the theory that you want all of the cases to be decided jointly with judicial economy....horse has left the barn with perry.  as well, perry is a consolidated action, dc cases consolidated together, so i wonder whether mdlp would want to consolidate non dc cases with a consolidated dc case that has already had a decision on merits

[muscleman]

fhfa trying to consolidate all cases in DC federal district court:  http://gselinks.com/Court_Filings/Judicial_Panel/28-0001-01.pdf

 

i actually think saxton/roberts and robinson fairly could be consolidated, but jacobs should not be since it is focused more on delaware law.  i am sure fhfa would want lamberth to be assigned to the consolidated cases as well.  while convenient for fhfa and its counsel, not convenient for plaintiffs.

 

The MDL thing is beyond my depth. I'll have to ask around, but I think you usually consolidate into an existing court rather than move to a completely new court. Moreover, they're trying to move to DC so they can use Lamberth as precedent -- doesn't matter if they get Lamberth assigned or not.

 

I've been researching and thinking about this since last night. I think the best strategy right now is to ask the other 3 cases' plantiffs to withdraw their case without prejudice. In this case, the MDL motion to transfer instantly becomes invalid.

[muscleman]

 

thanks merkhet for asking around.

 

@MM jacobs has a federal question, whether fhfa exceeded statutory authority, just different from other cases since it alleges you need to examine the NWS under state law to answer the federal question

 

@merkhet  arnold & porter is being cagy, trying to consolidate all other cases with perry in dc ct, but i have never seen a consolidation of trial level cases with a case currently up on appeal...sort of goes against the theory that you want all of the cases to be decided jointly with judicial economy....horse has left the barn with perry.  as well, perry is a consolidated action, dc cases consolidated together, so i wonder whether mdlp would want to consolidate non dc cases with a consolidated dc case that has already had a decision on merits

 

I think it is only the four cases below that FHFA is asking to transfer. Did I interpret it incorrectly?

 

Saxton v. FHFA, No. 1:15-cv-00047, was filed on May 28, 2015 in the U.S. District

Court for the Northern District of Iowa and is pending before Chief Judge Linda R.

Reade. The Saxton plaintiffs filed an Amended Complaint under seal on February 9,

2016. (Docket Sheet attached hereto; Amended Complaint filed under seal.)

 Jacobs v. FHFA, No. 1:15-cv-00708, was filed on August 17, 2015 in the U.S.

District Court for the District of Delaware and is pending before Judge Gregory M.

Sleet. (Docket Sheet and Complaint attached hereto.)

 Robinson v. FHFA, No. 7:15-cv-00109, was filed on October 23, 2015 in the U.S.

District Court for the Eastern District of Kentucky and is pending before Judge Amul

R. Thapar. The Robinson plaintiff filed an Amended Complaint under seal on

December 29, 2015. (Docket Sheet attached hereto; Amended Complaint filed under

seal.)

 Roberts v. FHFA, No. 1:16-CV-02107, was filed on February 10, 2016 in the U.S.

District Court for the Northern District of Illinois and is pending before Judge

Edmond E. Chang. (Docket Sheet and Complaint attached hereto.)

 

 

Please see paragraph 1 of this link

http://gselinks.com/Court_Filings/Judicial_Panel/28-0001-01.pdf

 

The Federal Housing Finance Agency (“FHFA” or the “Conservator”), as Conservator of

Fannie Mae and Freddie Mac (the “Enterprises”), respectfully requests that the Judicial Panel on

Multidistrict Litigation (the “Panel”) transfer four Enterprise-shareholder actions pending in four

district courts (the “Related Cases”) to the U.S. District Court for the District of Columbia for

coordinated pretrial proceedings. Each case—and more that FHFA expects may soon be filed—

involves plaintiffs with the same interests asserting the same claims arising out of the same

transaction against the same defendants.

[Guest cherzeca]

here's an example where a transfer was denied, the uber indep contractor/employee litigation:  http://www.jpml.uscourts.gov/sites/jpml/files/MDL-2686-Denied_Transfer-01-16.pdf

 

reason: state law applies to characterize relationship, and state laws differ.

 

this could support exclusion of jacobs, insofar as delaware law applies as a central aspect of case, and there already is a motion to certify the state law question.

 

also, plaintiffs could argue that consolidation makes sense only if there are trials, after motions to dismiss are denied.

[Guest cherzeca]

here's an example where a transfer was denied, the uber indep contractor/employee litigation:  http://www.jpml.uscourts.gov/sites/jpml/files/MDL-2686-Denied_Transfer-01-16.pdf

 

reason: state law applies to characterize relationship, and state laws differ.

 

this could support exclusion of jacobs, insofar as delaware law applies as a central aspect of case, and there already is a motion to certify the state law question.

 

also, plaintiffs could argue that consolidation makes sense only if there are trials, after motions to dismiss are denied.

 

as well, there is already effective coordination of sharing of fairholme discovery material under seal from federal court of claims.  so until motions to dismiss are decided, there is no need to consolidate to run a single trial process.