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

[Steve_Berk]

i actually think the manifest conflict of interest argument is a good one. there's good case law in the 9th circuit that addresses this point directly and helpfully. Although it hasn't been adopted in the DC circuit, it hasn't been rejected. Defendants basically had to say that case was decided wrong. But it really doesn't make any sense not to recognize that conflict of interest in my view. The argument goes that you can't expect the conservator to act on behalf of the interest of the shareholders if the decision that you're asking them to make is whether they should sue themselves. here, it's especially true where the Treasury and conservator are one and the same and acting in concert

 

 

from hume's opening brief:

does HERA bar shareholders from bringing derivative claims on behalf of the Companies against FHFA itself, and against another Government agency who acted in close concert with FHFA, where FHFA would have a “manifest conflict of interest” in bringing such claims? There are numerous courts holding that the answer to that question must be no, and this Court should likewise so hold.

A similar conflict is triggered in asking FHFA to sue its co-tortfeasor, Treasury. The District Court looked solely to whether FHFA and Treasury were “interrelated agencies with overlapping, personnel structures, and responsibilities,” whether they had an “operational or managerial overlap,” whether they share a “common genesis,” and whether Treasury had a role in choosing FHFA as conservator. J.A. 346. But that inquiry overlooks the fact that Treasury and FHFA were deeply “interrelated” in their decision to execute the Third Amendment

 

millett seemed very skeptical of this conflict of interest argument in the oral hearings. hopefully she'll read the latest unsealed docs. whats the process for getting these docs into the hands of the panel judges?

[doughishere]

The Legal Eagles(Cherz,Merk, Berk) back at it.

 

Got and email from Bruce.

 

 

Dear Investor,

   

The release of fifty-three additional documents pertaining to the 2012 “Net Worth Sweep” reveals “a brazen attempt, by a group of former White House, United States Treasury, and Federal Housing Finance Agency officials, to apparently violate the spirit and perhaps letter of the law, [and] exceed their statutory authorities […]” explains GSE analyst Josh Rosner in a document published this week.

 

The PDF is available at the following link: http://www.nakedcapitalism.com/wp-content/uploads/2016/05/GFCo.-GSEs-Former-WH-Officials-Involved-in-GSE-Scandal.pdf

   

We also encourage you to visit www.fanniefreddiesecrets.org to view news coverage and other important materials, including the unsealed documents.

   

Kind regards,

   

Investor Relations

 

 

 

Fairholme Funds, Inc.

4400 Biscayne Blvd.

9th Floor

Miami, FL 33137

 

To unsubscribe, click here

[doughishere]

Sorry it's just a repost of old stuff.

[Steve_Berk]

i am far more optimistic now than i was right after oral arguments. I now see a plausible path for reversal, but still believe that the most likely result of the perry case is remand. I no longer think that affirmance is more likely than reversal though. And I think there's enough out there that even Millet might be thinking twice about affirming. Many of the points she was raising during oral arguments seemed to have this implicit sense of trust that the conservator/treasury was just trying their best to make the right decision for the entities and country, which  goes along with the deference that a judge is supposed to give under the APA. But I have to believe, given her willingness to explore questions about motivation of the conservator, that documents revealing that the government straight out lied, will have a real impact and that she may be offended by the disingenuous nature of the death spiral explanation. If I had to guess, I still think she'll affirm, but at this point, I'm not sure about that.

 

Sorry it's just a repost of old stuff.

[Guest cherzeca]

interesting order by sweeney. basically, she rebuffs govt, where govt asks for clarification that prior agency declaration for deliberation privilege is sufficient, she just turns it around on govt and tells govt you conclude whether or not it was sufficient, and gives just a little leeway for the declaration for the potus communication privilege

 

https://www.dropbox.com/s/tm3kmtpi4idh095/priv%20clarification%20order.pdf?dl=0

 

my read=sweeney is losing patience with govt

[merkhet]

interesting order by sweeney. basically, she rebuffs govt, where govt asks for clarification that prior agency declaration for deliberation privilege is sufficient, she just turns it around on govt and tells govt you conclude whether or not it was sufficient, and gives just a little leeway for the declaration for the potus communication privilege

 

https://www.dropbox.com/s/tm3kmtpi4idh095/priv%20clarification%20order.pdf?dl=0

 

my read=sweeney is losing patience with govt

 

Similar read here. Also, forces the government's hand re POTUS involvement.

[doughishere]

This was talked about at that golf meeting a while back. I have a feeling the play has already been decided.....

[doughishere]

This was talked about at that golf meeting a while back. I have a feeling the play has already been decided.....

 

Now we are just going through the motions.

 

 

I have nothing to back that statement up. Just a feeling.

[Steve_Berk]

more attack articles from the WSJ: http://www.wsj.com/articles/fannie-freddie-and-an-outbreak-of-amnesia-1464131687

 

Interesting to me to see how they approach this. I think this article says it all--they just don't like the GSE's, which is why they are less critical of what the gov't did bringing it into conservatorship and sweeping profits

[Eye4Valu]

We need some "fair and balanced" reporting on the issue from the WSJ. I won't hold my breath. 

[Guest cherzeca]

just saw this:  https://www.dropbox.com/s/be2p2r5cbj1vugg/hindes%3Ajacobs%20notice%20supp%20info%20mdl.pdf?dl=0

 

hindes/jacobs counsel informs mdl panel that it will drop all claims shared in common by other plaintiffs, so that only remaining claim is the del corp law claim that nws violates permissible pref terms.

 

so there will be nothing in common between h/j and other cases to consolidate.  smart tactic methinks

[hardincap]

just saw this:  https://www.dropbox.com/s/be2p2r5cbj1vugg/hindes%3Ajacobs%20notice%20supp%20info%20mdl.pdf?dl=0

 

hindes/jacobs counsel informs mdl panel that it will drop all claims shared in common by other plaintiffs, so that only remaining claim is the del corp law claim that nws violates permissible pref terms.

 

so there will be nothing in common between h/j and other cases to consolidate.  smart tactic methinks

 

+1. lets see how govt tries to weasel out of that one

[Luke 532]

just saw this:  https://www.dropbox.com/s/be2p2r5cbj1vugg/hindes%3Ajacobs%20notice%20supp%20info%20mdl.pdf?dl=0

 

hindes/jacobs counsel informs mdl panel that it will drop all claims shared in common by other plaintiffs, so that only remaining claim is the del corp law claim that nws violates permissible pref terms.

 

so there will be nothing in common between h/j and other cases to consolidate.  smart tactic methinks

 

Very nice move!

[Mephistopheles]

What is the risk, if any, of a ruling in favor of shareholders, but applicable to only those who purchased prior to the NWS? I'm sure it's a small risk if any but just curious if it's zero or non-zero.

[Guest cherzeca]

What is the risk, if any, of a ruling in favor of shareholders, but applicable to only those who purchased prior to the NWS? I'm sure it's a small risk if any but just curious if it's zero or non-zero.

 

imo, zero for perry APA claim (vacate nws), and hindes/jacobs.  very small for fairholme (takings) and breach of K and fid duty claims.  i do not give it any weighting.

[Eye4Valu]

When a person/entity purchases a share of common and/or preferred stock from another person/entity, they succeed to their economic and/or contractual rights as successors in interest. Doesn't matter when you purchased it or they sold it.

[Guest cherzeca]

When a person/entity purchases a share of common and/or preferred stock from another person/entity, they succeed to their economic and/or contractual rights as successors in interest. Doesn't matter when you purchased it or they sold it.

 

that is likely right for standing purposes.  plus every dividend in excess of 10% is a new violation/breach giving rise to more people who have standing.

 

 

[Jurgis]

When a person/entity purchases a share of common and/or preferred stock from another person/entity, they succeed to their economic and/or contractual rights as successors in interest. Doesn't matter when you purchased it or they sold it.

 

I don't read and understand legalese and the risk might be close to zero in FNMA/FMCC case as the resident lawyers explain, but it's not true in general. There are numerous class action lawsuits against companies where only people who owned it at the time of fraud/misrepresentation/whatever get compensated. So when you buy shares you may get economic rights, but you don't get the litigation result rights if the litigation is based on ownership at specific period of time in the past.

[Guest cherzeca]

When a person/entity purchases a share of common and/or preferred stock from another person/entity, they succeed to their economic and/or contractual rights as successors in interest. Doesn't matter when you purchased it or they sold it.

 

I don't read and understand legalese and the risk might be close to zero in FNMA/FMCC case as the resident lawyers explain, but it's not true in general. There are numerous class action lawsuits against companies where only people who owned it at the time of fraud/misrepresentation/whatever get compensated. So when you buy shares you may get economic rights, but you don't get the litigation result rights if the litigation is based on ownership at specific period of time in the past.

 

quite true but that relates to securities disclosure violations, where those who bought w/o proper disclosures can be distinguished from those who bought after the correcting disclosure has come out (and the price has gone down).  the post disclosure folks have suffered no injury.  here there is no pre and post. the nws is still in effect.  if it gets vacated, you have to hold when it is vacated to take advantage of remedy. 

[doughishere]

When a person/entity purchases a share of common and/or preferred stock from another person/entity, they succeed to their economic and/or contractual rights as successors in interest. Doesn't matter when you purchased it or they sold it.

 

I don't read and understand legalese and the risk might be close to zero in FNMA/FMCC case as the resident lawyers explain, but it's not true in general. There are numerous class action lawsuits against companies where only people who owned it at the time of fraud/misrepresentation/whatever get compensated. So when you buy shares you may get economic rights, but you don't get the litigation result rights if the litigation is based on ownership at specific period of time in the past.

 

 

Jurgis, you eyeing that dividend on the sr.prefs?

[muscleman]

just saw this:  https://www.dropbox.com/s/be2p2r5cbj1vugg/hindes%3Ajacobs%20notice%20supp%20info%20mdl.pdf?dl=0

 

hindes/jacobs counsel informs mdl panel that it will drop all claims shared in common by other plaintiffs, so that only remaining claim is the del corp law claim that nws violates permissible pref terms.

 

so there will be nothing in common between h/j and other cases to consolidate.  smart tactic methinks

 

On the same night when FHFA filed the motion to consolidate, I emailed Steel and asked him if the best strategy is to ask the other 3 cases to drop so there is only the DE case, and that would invalidate FHFA's motion. He did not respond.

 

Now it sounds like he might have read my email anyway.  :)

[SnarkyPuppy]

Wish I understood the legal aspects of this case better.  Common sense and a basic understanding of capitalism indicate wrongdoing resulting in reversal, but the practical world consists of a government with its own self interests and a law which can be counter-intuitive to the layman. 

 

The majority of what is being written/vocalized is from the perspective of the the bull side of the thesis.  Maybe this is warranted - but it regardless creates bias from anyone trying to follow the details of the case.  I'd be very curious to read a 360 page thread with individuals on the other side (maybe they would have nothing of substance to say).  I know the WSJ has acted in this capacity and I have been following. 

 

From my lay perspective, the section of the FNMA 10Q around the time of the NWS referencing 'volatility in earnings' but risk that they likely would not be able to meet the 10% dividend seems inconsistent with some of the other information that has recently come to light (CFO stating future profitability and reversal of DTA allowance, 'golden years of GSEs ahead').  I know this was brought up in the appeals hearing and it seems like a potential road block (I could be totally off base and bringing this conversation down to an elementary level) - is there a strong retort to this element of the case?

[Guest cherzeca]

Wish I understood the legal aspects of this case better.  Common sense and a basic understanding of capitalism indicate wrongdoing resulting in reversal, but the practical world consists of a government with its own self interests and a law which can be counter-intuitive to the layman. 

 

The majority of what is being written/vocalized is from the perspective of the the bull side of the thesis.  Maybe this is warranted - but it regardless creates bias from anyone trying to follow the details of the case.  I'd be very curious to read a 360 page thread with individuals on the other side (maybe they would have nothing of substance to say).  I know the WSJ has acted in this capacity and I have been following. 

 

From my lay perspective, the section of the FNMA 10Q around the time of the NWS referencing 'volatility in earnings' but risk that they likely would not be able to meet the 10% dividend seems inconsistent with some of the other information that has recently come to light (CFO stating future profitability and reversal of DTA allowance, 'golden years of GSEs ahead').  I know this was brought up in the appeals hearing and it seems like a potential road block (I could be totally off base and bringing this conversation down to an elementary level) - is there a strong retort to this element of the case?

 

@SP

 

the best retort may come from tim howard, former cfo of fnma:  https://howardonmortgagefinance.com/2016/05/02/getting-from-here-to-there/#comments

 

"I don’t see anything either surprising or troubling in the quote you cite from Fannie Mae’s second quarter 2012 10Q.

 

The first thing one needs to remember is that all language in Fannie’s 10Ks and 10Qs needed to have sign-off from officials at FHFA. For that reason, I wouldn’t have expected to see anything close to the phrasing Dave Benson used in talking to his own management in July 2012 (over a month before Fannie’s second quarter 10Q was released) about a “Golden Age of earnings” in the coming eight years.

 

We now have a couple of pieces of context on this from the documents released last week. First, in a draft “housing finance/ GSE reform proposal” from Treasury circulated in early February 2012, we know Treasury already was talking about “restructur[ing] PSPAs to allow for variable dividend payment based on positive net worth” at that time. Second, an August 9, 2012 (pre-Third Amendment) memo from FHFA official Mario Ugoletti makes reference to “previous versions we had reviewed in terms of net worth sweep.” Given that Treasury had been contemplating a net worth sweep for at least six months—and that FHFA knew this well before the sweep was announced—FHFA wasn’t going to permit language in Fannie’s 10Q that cast doubt on Treasury’s professed rationale for the sweep, which was that Fannie and Freddie were facing a “death spiral” of continued borrowing to pay their quarterly PSPA dividends.

 

And note the cleverness of the language actually used in Fannie’s second quarter 2012 10Q. It says “we do not expect to generate net income or comprehensive income in excess of our annual dividend obligation to Treasury over the long term.” For the next several years, Fannie was going to see huge profitability because of the cessation or reversal of the temporary or artificial losses booked over the previous four years. But after that–“over the long term”–the nearly $18 billion in pre-tax earnings Treasury had forced Fannie to pay each year by running up its book losses through 2011 very likely would have been more than the company could earn on a sustained basis. So the language in Fannie’s second quarter 2012 10Q wasn’t inaccurate, just misleading—and deliberately so."

 

and to beat a dead horse with which i have exasperated merkhet, my conviction may be what you think is my bias, but that only makes it so for you, not for me.

 

 

[merkhet]

and to beat a dead horse with which i have exasperated merkhet[...]

 

http://blog.itil.org/wp-content/uploads/2012/12/flogging_dead_horse_what.jpg

 

:)

 

just saw this:  https://www.dropbox.com/s/be2p2r5cbj1vugg/hindes%3Ajacobs%20notice%20supp%20info%20mdl.pdf?dl=0

 

hindes/jacobs counsel informs mdl panel that it will drop all claims shared in common by other plaintiffs, so that only remaining claim is the del corp law claim that nws violates permissible pref terms.

 

so there will be nothing in common between h/j and other cases to consolidate.  smart tactic methinks

 

Was anyone able to attend the MDL hearing? I'm curious to hear how it went.

[merkhet]

FWIW, I think there is an immense amount of pressure all happening at once.

 

(1) Perry Appeal opinion is probably coming out by the end of summer.

 

(2) MDL is likely going to break in our favor, which means the Delaware case could see a resolution by end of summer.

 

(3) Government has to provide documents under the motion to compel to Sweeney by EOB today, and they're going to have to get POTUS to sign off on executive privilege by two weeks from now.