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

[merkhet]

Perry Capital wants access to the Protected Information:

 

https://www.dropbox.com/s/p9s839t2hrg3mmp/2015-08-11%20Notice%20for%20Perry%20Capital%20to%20Access%20Protected%20Information.pdf?dl=0

 

Government wants to deny Perry Capital that access:

 

https://www.dropbox.com/s/zxmo01gpnos0rj8/2015-08-12%20Government%27s%20Opposition%20to%20Notice%20for%20Perry%20Capital%27s%20Access%20to%20Protected%20Information.pdf?dl=0

 

Moreover, we now know why the briefing schedule was suspended.

 

As this Court is aware, Fairholme is engaged in litigation involving the Net Worth Sweep before the U.S. Court of Appeals for the D.C. Circuit. See Fairholme Funds, Inc. v. Fed. Housing Fin. Agency, No. 14-5254 (D.C. Cir.). On July 21, 2015, this Court granted Fairholme permission to file Protected Information under seal in that action before the Court of Appeals, D.E. 212. On July 29, 2015, Fairholme filed those materials under seal in the Court of Appeals as part of a motion asking the Court to take judicial notice of that Protected Information.

 

Perry Capital also is a party to that appeal before the Court of Appeals, which has been consolidated under the caption, Perry Capital LLC v. Lew, Nos. 14-5243(L), 14-5254(con.), 14- 5260(con.), 14-5262(con.) (D.C. Cir.). Perry Capital and Fairholme filed their joint opening brief on June 29, 2015, and, after seeking an extension, the government was scheduled to file its response on September 14, 2015. On August 6, 2015, however, the Court of Appeals issued an order suspending the merits briefing schedule pending resolution of Fairholme’s motion for judicial notice. Because the material in that motion is filed under seal pursuant to this Court’s protective order, counsel for Perry Capital cannot review the motion or the appended materials. Perry Capital’s response to that motion is due on August 13, 2015.

[Eye4Valu]

I don't think the U.S. has any incentive to settle. Right now they get to keep all the $$$. Only reason to settle is to avoid public disclosure of discovery materials. I suspect that the courts will keep the discovery materials under seal, but allow the plaintiffs' attorneys to utilize them under seal. Thus, no reason to settle.

[merkhet]

There's a closed status conference set for tomorrow, so I think both sides may get a preview of how the court views the unsealing of the discovery materials.

[muscleman]

There's a closed status conference set for tomorrow, so I think both sides may get a preview of how the court views the unsealing of the discovery materials.

 

I don't count on settling at all. As I said before, governments are highly bureaucratic and always backward looking and react quickly after disasters have happened.

I guess the previous government lead attorney left because he figured out there is no way to win and these government heads were too stubborn to talk about settlement. Therefore it will be a waste of his life to defend this non-sense.

[merkhet]

There's a closed status conference set for tomorrow, so I think both sides may get a preview of how the court views the unsealing of the discovery materials.

 

I don't count on settling at all. As I said before, governments are highly bureaucratic and always backward looking and react quickly after disasters have happened.

I guess the previous government lead attorney left because he figured out there is no way to win and these government heads were too stubborn to talk about settlement. Therefore it will be a waste of his life to defend this non-sense.

 

That's a highly unlikely reason for the guy to leave. It's not like this case will drag on for the rest of his career so to leave Justice because of that would be rather impulsive.

[merkhet]

There's a closed status conference set for tomorrow, so I think both sides may get a preview of how the court views the unsealing of the discovery materials.

 

My mistake. The status conference was vacated back when they extended the response time for the defendants' reply to the motions to unseal. No status conference today.

[Luke 532]

Not that it means anything either way, but the volume this week has been really interesting.  Roughly $10,000 worth of FNMAS traded today in the first 2 hours. 

[doughishere]

http://www.mortgageorb.com/e107_plugins/content/content.php?content.17082#.VcsRZCSUZMk.twitter

 

Cooper says the next step is to collect the information and prepare documents for filing in the U.S. Court of Appeals. There is no timeline on that, but Cooper hopes the government will mediate. "We reached our hand out to the government," Cooper says. "We would like to do that, [but] so far to no avail. I still hold out some hope the government may agree to resolve this dispute amicably."

 

It's unclear how recently they reached out -- but it reads like this was post-discovery.

 

 

Is cooper referring to a settlement on the whole thing or just the getting the case in to the appeals court. I think he's referring to the latter.

 

[merkhet]

He's referring to the former.

[doughishere]

I'm not holding out man. I just don't see it happening. Ballsy move if he did.

[Mephistopheles]

If there is no chance of settlement, let's hope the judge makes the stuff public. If it's as damning as we think it is, the preferred would likely triple or quadruple. At which point I would sell much of my position to pick up some cheaper stocks due to this China induced selloff.

[Luke 532]

Obama's golf foursome today included Bill Clinton, Vernon Jordan, and Ron Kirk.  Kirk just so happens to be Senior of Counsel at Gibson, Dunn & Crutcher... Perry's law firm.  I'm sure that's just a coincidence and a deal isn't in the works. :)

[Luke 532]

New case filed today in U.S. District Court (District of Delaware) fighting the 2012 NWS.  Guess who is the attorney on the case?  None other than Myron T. Steele, former Chief Justice of Delaware.  I wonder who is going to win this case?  ;)

https://www.luminpdf.com/viewer/imZTDdPZ2EQeMDfNp

[Mephistopheles]

Can you post the pdf here? Or we have to make a Lumin login?

[Luke 532]

Can you post the pdf here? Or we have to make a Lumin login?

 

Here you go: https://docs.google.com/viewerng/viewer?url=http://twitdoc.com/upload/jonaprior/1-delaware-complaint.pdf

[Mephistopheles]

Thanks Luke

[Luke 532]

New case filed today in U.S. District Court (District of Delaware) fighting the 2012 NWS.  Guess who is the attorney on the case?  None other than Myron T. Steele, former Chief Justice of Delaware.  I wonder who is going to win this case?  ;)

https://docs.google.com/viewerng/viewer?url=http://twitdoc.com/upload/jonaprior/1-delaware-complaint.pdf

 

Is it just me or does it seem like the odds are extremely high of the former Chief Justice of a state winning in his old stomping grounds?  And, if Steele and the plaintiffs were to win, wouldn't that bode very well for FNMAS shareholders?  It's hard to imagine the former Chief Justice grossly misinterpreting the law in his own state.  Maybe I'm missing something, but in my view, the odds of this working out very well for FNMAS shareholders have increased to materially above 50% and the risk $1/profit $4+ still remains.  I don't even want to venture a guess as to the odds as that's impossible to tell, but it is looking better by the day.  Am I way off-base with this line of thinking?  Thanks in advance for your input!

[TwoCitiesCapital]

New case filed today in U.S. District Court (District of Delaware) fighting the 2012 NWS.  Guess who is the attorney on the case?  None other than Myron T. Steele, former Chief Justice of Delaware.  I wonder who is going to win this case?  ;)

https://docs.google.com/viewerng/viewer?url=http://twitdoc.com/upload/jonaprior/1-delaware-complaint.pdf

 

Is it just me or does it seem like the odds are extremely high of the former Chief Justice of a state winning in his old stomping grounds?  And, if Steele and the plaintiffs were to win, wouldn't that bode very well for FNMAS shareholders?  It's hard to imagine the former Chief Justice grossly misinterpreting the law in his own state.  Maybe I'm missing something, but in my view, the odds of this working out very well for FNMAS shareholders have increased to materially above 50% and the risk $1/profit $4+ still remains.  I don't even want to venture a guess as to the odds as that's impossible to tell, but it is looking better by the day.  Am I way off-base with this line of thinking?  Thanks in advance for your input!

 

I've been thinking the same thing and have been slowly building up the position I sold after the AIG decision.

[doughishere]

What I'm kinda tripping on is why hasn't this been brought up before? Maybe it doesn't go to the federal court or the district but I find it hard to believe someone at pershing, fairlome or perry hasn't thought of this already.

[Mephistopheles]

So now there are three major legal challenges: 5th Amendment, Conservatorship under HERA, and Corporate Law. If we win one of these and lose the other two, is that still a win? I.e. Sweep doesn't violate the Constitution but does violate Delaware corporate law.

 

If so, let's just assume each case has a 10% chance of winning (even though it's much higher imo). That's 30% chance of an 8 bagger for some of the preferreds.

 

I'm sure I'm oversimplifying, but the odds are looking pretty good.

[oddballstocks]

I'm not going to read 35 pages here but I'm trying to get a simple handle on this. Is the below accurate?

 

Preferreds trade and right now are technically worthless so they are priced low. Yet there are a lot of legal battles and if by chance one of them wins the preferreds will be worth 4-8x their current value.

 

Clearly this is a complete speculation, although there is nothing wrong with speculating if the odds are in your favor. If my statement is correct it seems like it's worth picking up some shares then ignoring this for a few years and either cashing out for a trip to Disney or sheltering some gains from taxes.

[merkhet]

What I'm kinda tripping on is why hasn't this been brought up before? Maybe it doesn't go to the federal court or the district but I find it hard to believe someone at pershing, fairlome or perry hasn't thought of this already.

 

Pershing Square advanced the same arguments in one of their complaints that they then withdrew. So, Pershing has, in fact, already thought of this.

[merkhet]

I'm not going to read 35 pages here but I'm trying to get a simple handle on this. Is the below accurate?

 

Preferreds trade and right now are technically worthless so they are priced low. Yet there are a lot of legal battles and if by chance one of them wins the preferreds will be worth 4-8x their current value.

 

Clearly this is a complete speculation, although there is nothing wrong with speculating if the odds are in your favor. If my statement is correct it seems like it's worth picking up some shares then ignoring this for a few years and either cashing out for a trip to Disney or sheltering some gains from taxes.

 

I wouldn't necessarily classify it as speculation, but that's the gist.

[intothebreach]

To Oddball: Essentially yes, although the potential payoff for the preferred may be even higher with dividend payments if the contracts are ultimately upheld.

 

The way I view the whole thing is as an asymmetrical bet. While there is a possibility that the whole thing fails completely (will be decided by judges, with huge lobbying on both sides, and always the possibility of a less than perfect settlement), my personal view at this point is that the odds are at least slightly favorables, and the potential payoff is clearly multiple of the potential loss. So I'm sizing up accordingly, meaning I can live with the loss if it comes to that, but it will be worthwhile if this ship does come in. And as you mentioned, this may still take a long while if they decide to pursue all possible appeals in case of a favorable decision.

 

If you want to rapidly get up to speed, just going through merkhet's posts should do it.

[Mephistopheles]

The important thing to remember is that there need not be a ultimate final decision for there to be a payoff. There are many catalysts along the way. For example if Judge Sweeny unseals the depositions, that might be a quadruple right there. Or if the appeals court throws out Lamberth's decision. If something like this were to happen you can reevaluate the odds and reallocate to other investments if beneficial.