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

[merkhet]

Finally, someone asked the settlement question.

 

“If there were settlement discussions, those would be confidential, and I wouldn’t be able to discuss them in this setting."

[merkhet]

All my questions were eventually answered.

 

(1) Why do you need to use judicial notice for these documents? Shouldn't they already have been part of the Fairholme discovery already?

 

Apparently, some things weren't cited because of trying to be economical re the brief. And apparently, they didn't have access to some of these documents. Didn't get into why.

 

(2) What's the timeline for the APA response?

 

Thinks late June or early July.

 

(3) What's the timeline for the MDL response?

 

Thinks first two weeks of June.

[Steve_Berk]

i tried to ask a question but unfortunately they didn't get to me. It's too bad--those questions were pretty bad--it was such a good opportunity to dig in, but instead we got either softballs or questions that are unanswerable.

 

They did not get to my question, which was, notwithstanding the fact that the newly released documents and the mcfarlane deposition appear to support the narrative that the Treasury expected the GSE's to become profitable, how do we square that with the 10'Qs that were released Aug 8,9 and essentially say that the GSE's do not expect to make any money for the foreseeable future. So how do we avoid Judge Ginsburg's characterization that there were competing views at the time?

[hardincap]

Finally, someone asked the settlement question.

 

“If there were settlement discussions, those would be confidential, and I wouldn’t be able to discuss them in this setting."

 

it was more of a btw remark. i got the impression that there weren't any settlement discussions. will have to relisten though

[Grenville]

this appears to be the full listing of the documents released last week:  http://fanniefreddiesecrets.org/category/court-documents/

 

EDIT see http://fanniefreddiesecrets.org/wp-content/uploads/2016/05/FHFA00012792_Redacted.pdf which i havent seen referenced before.  puts to lie the death spiral narrative

 

EDIT:  telephone CC with cooper & kirk: 

Date: May 24, 2016

 

Time: 4:30 PM ET

 

Host: David Thompson, Managing Partner at Cooper & Kirk

 

Subject: Recent developments in GSE litigation, including newly unsealed documents.

 

Participant Toll Free Dial-In Number: (866) 547-1509

 

@cherzeca Thanks for the above links to the documents and the call.

 

The call answered some of my questions including the one about why the government agreed to unseal the documents ahead of a ruling.

[Eye4Valu]

I was impressed by David Thompson. Seems to be the right man at the right time in the right place.

[merkhet]

i tried to ask a question but unfortunately they didn't get to me. It's too bad--those questions were pretty bad--it was such a good opportunity to dig in, but instead we got either softballs or questions that are unanswerable.

 

They did not get to my question, which was, notwithstanding the fact that the newly released documents and the mcfarlane deposition appear to support the narrative that the Treasury expected the GSE's to become profitable, how do we square that with the 10'Qs that were released Aug 8,9 and essentially say that the GSE's do not expect to make any money for the foreseeable future. So how do we avoid Judge Ginsburg's characterization that there were competing views at the time?

 

Sucks. Would have been a good Q.

[Steve_Berk]

I found the 10-Q. It's interesting because it definitely talks about how things were turning around and more positive (certainly contrary to the death spiral narrative). However, this is the portion that Ginsburg threw at Olson and Olson was not able to answer, http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2012/q22012.pdf (p12):

 

Uncertainty Regarding our Future Status and Ability to Pay Dividends to Treasury. There is significant uncertainty in the

current market environment, and any changes in the trends in macroeconomic factors that we currently anticipate, such as

home prices and unemployment, may cause our future credit-related expenses or income and credit losses to vary

significantly from our current expectations. The dividend payments we make on Treasury’s senior preferred stock are

substantial, currently $11.7 billion per year. We have paid over $25 billion in dividends to Treasury since entering into

conservatorship in 2008. Although we may experience period-to-period volatility in earnings and comprehensive income, we

do not expect to generate net income or comprehensive income in excess of our annual dividend obligation to Treasury over

the long term. However, we expect that in some future quarters we will be able to generate comprehensive income sufficient

to cover at least a portion of our quarterly dividend payment to Treasury.

 

i tried to ask a question but unfortunately they didn't get to me. It's too bad--those questions were pretty bad--it was such a good opportunity to dig in, but instead we got either softballs or questions that are unanswerable.

 

They did not get to my question, which was, notwithstanding the fact that the newly released documents and the mcfarlane deposition appear to support the narrative that the Treasury expected the GSE's to become profitable, how do we square that with the 10'Qs that were released Aug 8,9 and essentially say that the GSE's do not expect to make any money for the foreseeable future. So how do we avoid Judge Ginsburg's characterization that there were competing views at the time?

 

Sucks. Would have been a good Q.

[Eye4Valu]

Surprised that Dick Bove didn't ask better questions on the conference call. He seems to have a good grasp on this epic saga.

[doughishere]

https://www.scribd.com/doc/313724921/GF-Co-GSEs-Former-WH-Officials-Involved-in-GSE-Scandal

 

 

 

 

GrahamFisher - Josh Rosner.

 

 

Prior to the release of these newly unsealed documents, the Government claimed publicly and in court that it did not anticipate these accounting adjustments when the Net Worth Sweep was announced. The unsealed documents show that this claim was patently false

 

 

Isnt this like perjury?

[colinwalt]

i tried to ask a question but unfortunately they didn't get to me. It's too bad--those questions were pretty bad--it was such a good opportunity to dig in, but instead we got either softballs or questions that are unanswerable.

 

They did not get to my question, which was, notwithstanding the fact that the newly released documents and the mcfarlane deposition appear to support the narrative that the Treasury expected the GSE's to become profitable, how do we square that with the 10'Qs that were released Aug 8,9 and essentially say that the GSE's do not expect to make any money for the foreseeable future. So how do we avoid Judge Ginsburg's characterization that there were competing views at the time?

 

Sucks. Would have been a good Q.

 

Is there a way to ask in a follow-up email?

[hardincap]

lots of action recently. first the investors unite calls, then launch of fnma secrets site, now cooper conf call. i wonder if this is all coordinated?

[Guest cherzeca]

i didnt get to hear call, but am i right from reading these last posts that the perry app ct does not have as part of the record this most recent release including for example the "8 golden years of profitability"?

[merkhet]

i didnt get to hear call, but am i right from reading these last posts that the perry app ct does not have as part of the record this most recent release including for example the "8 golden years of profitability"?

 

Yes, that's what they seemed to be saying.

[Guest cherzeca]

i didnt get to hear call, but am i right from reading these last posts that the perry app ct does not have as part of the record this most recent release including for example the "8 golden years of profitability"?

 

Yes, that's what they seemed to be saying.

 

sounds to me like a lawyers mistake.  last release was from fairholme discovery, so cooper & kirk had to have had it when drafting the judicial notice motion.  why cooper & kirk did not include some of this as part of judicial notice motion is beyond me.

[merkhet]

The answer seemed to indicate that some of these documents weren't in the Fairholme discovery.

 

They said that in the next 24 to 48 hours, they will be filing a judicial notice motion.

[muscleman]

The answer seemed to indicate that some of these documents weren't in the Fairholme discovery.

 

They said that in the next 24 to 48 hours, they will be filing a judicial notice motion.

 

That's surprising. How did this happen? And how did government AGREE with Robinson to release these documents?

I wonder if Bob Corker made some money shorting FNMA and then loaded the truck on FNMA and released these docs to Robinsons, so the Plantiffs could win and he could win double.  ::)

[Grenville]

 

That's surprising. How did this happen? And how did government AGREE with Robinson to release these documents?

 

From what I remember, David Thompson said that the documents may have been referenced in sealed motions before the MDL and therefore caused some pressure for the government to release them. Another angle he mentioned was that given that Sweeney released the previous set of documents for the Merits panel and her tone in that order may have led the government to release here. He also said that he can't be sure on the governments reasoning.

 

If the call is recorded, I would just listen to his response, because the question was asked.

[Eye4Valu]

I wonder if Fairholme will provide a transcript or provide a replay of the call? From what I gathered from David Thompson, he seemed to think there was a decent chance of reversal on appeal. He mentioned that too many people are focusing on the oral arguments, as opposed to the amicus briefs. He mentioned Krimminger's amicus brief as particularly relevant in light of the fact that HERA is predicated on the exact same language as the act governing the FDIC. Mentioned that Krimminger had experience with over 1,000 conservatorships. I came away from the call very positive on the whole situation. Crucial thanks to Fairholme. Thompson made the point that without Fairholme's case in the Court of Claims, nobody would have ever seen these documents.

[Guest cherzeca]

I wonder if Fairholme will provide a transcript or provide a replay of the call? From what I gathered from David Thompson, he seemed to think there was a decent chance of reversal on appeal. He mentioned that too many people are focusing on the oral arguments, as opposed to the amicus briefs. He mentioned Krimminger's amicus brief as particularly relevant in light of the fact that HERA is predicated on the exact same language as the act governing the FDIC. Mentioned that Krimminger had experience with over 1,000 conservatorships. I came away from the call very positive on the whole situation. Crucial thanks to Fairholme. Thompson made the point that without Fairholme's case in the Court of Claims, nobody would have ever seen these documents.

 

thanks for that. i did get the sense from the oral arg that the judges hadn't read the amicus briefs.  when hume in closing implored the panel to read the pershing amicus on unconstitutional avoidance, there was silence as if the judges were students who didnt want to admit that they hadnt read the assignment (and i suspect hume wouldnt have been so insistent if he thought the judges had read that brief).

 

as well, even tho there was zip on the treasury sunset securities purchase provision during oral arg, that is an argument that i think may be resonant to B&G when they read and reread briefs and sick their clerks into research mode, and which would auger for reversal rather than remand.

 

and while i called out C&K in my prior post for lawyer error, i have to agree that it was great to have fairholme discovery going on while lamberth decided no discovery was necessary.  this strategy of bringing APA and takings actions simultaneously seems unexceptional ex post, but is good lawyering when looked at as a strategy (undoubtedly involving coordination between C&K and GD&C) developed ex ante.

[Steve_Berk]

Just wanted to raise this again to make sure that I'm not missing something. if the Treasury was indeed in control during the enactment of the NWS, that certainly helps to establish a conflict of interest and possible application of the exception to give shareholders the right to sue. But besides adding to the overall narrative that the government was self-dealing, is there statutory relief that flows from this conflict? Is the Treasury's involvement and the FHFA's lack of independence itself a cause of action and violation of HERA? I need to read over HERA to see how it works, but not sure that this has been really addressed.

 

That the Treasury was instrumental and pulling the strings of the FHFA goes to proving that the conflict of interest exception that we would like to apply to HERA is available to the shareholders. The argument goes that the FHFA and the Treasury are acting as one and the same and you can't expect that entity to bring a claim on behalf of shareholders against itself so the shareholders can bring a claim. That's how the emails coming from Parrott can be immediately helpful on the point about the Treasury taking charge

[Guest cherzeca]

Just wanted to raise this again to make sure that I'm not missing something. if the Treasury was indeed in control during the enactment of the NWS, that certainly helps to establish a conflict of interest and possible application of the exception to give shareholders the right to sue. But besides adding to the overall narrative that the government was self-dealing, is there statutory relief that flows from this conflict? Is the Treasury's involvement and the FHFA's lack of independence itself a cause of action and violation of HERA? I need to read over HERA to see how it works, but not sure that this has been really addressed.

 

That the Treasury was instrumental and pulling the strings of the FHFA goes to proving that the conflict of interest exception that we would like to apply to HERA is available to the shareholders. The argument goes that the FHFA and the Treasury are acting as one and the same and you can't expect that entity to bring a claim on behalf of shareholders against itself so the shareholders can bring a claim. That's how the emails coming from Parrott can be immediately helpful on the point about the Treasury taking charge

 

1. evidence that fhfa was subject to direction of another agency  hera section 4617(a)(7) "When acting as conservator or receiver, the Agency shall not be subject to the direction or supervision of any other agency of the United States or any State in the exercise of the rights, powers, and privileges of the Agency."

 

2. evidence that treasury induced fhfa to breach fiduciary duty to common and breach contract claims to preferred.

 

EDIT:  so what is the statutory relief? for 1, should be invalidation of NWS under APA (decision arbitrary and capricious if in violation of governing statute).  for 2, damages

 

[Steve_Berk]

so how does the argument play out on 4167 (a)(7)? that the conservator was not acting independently, as required by HERA, so therefore any acts it performed under 4167 (a)(7) that were unduly influenced by a federal agency (the Treasury) are invalid? that's a pretty strong argument

 

Just wanted to raise this again to make sure that I'm not missing something. if the Treasury was indeed in control during the enactment of the NWS, that certainly helps to establish a conflict of interest and possible application of the exception to give shareholders the right to sue. But besides adding to the overall narrative that the government was self-dealing, is there statutory relief that flows from this conflict? Is the Treasury's involvement and the FHFA's lack of independence itself a cause of action and violation of HERA? I need to read over HERA to see how it works, but not sure that this has been really addressed.

 

That the Treasury was instrumental and pulling the strings of the FHFA goes to proving that the conflict of interest exception that we would like to apply to HERA is available to the shareholders. The argument goes that the FHFA and the Treasury are acting as one and the same and you can't expect that entity to bring a claim on behalf of shareholders against itself so the shareholders can bring a claim. That's how the emails coming from Parrott can be immediately helpful on the point about the Treasury taking charge

 

1. evidence that fhfa was subject to direction of another agency  hera section 4617(a)(7) "When acting as conservator or receiver, the Agency shall not be subject to the direction or supervision of any other agency of the United States or any State in the exercise of the rights, powers, and privileges of the Agency."

 

2. evidence that treasury induced fhfa to breach fiduciary duty to common and breach contract claims to preferred.

[hardincap]

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?

[Guest cherzeca]

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?

 

judges are restricted to record before them, tho they can take judicial notice of ordinary facts outside record, plus anything counsel bring to their attention by judical notice motion.  my view is that if Ps do not file another judicial notice motion, they should not consider this last release of docs