In the most recent development within the ongoing narrative of the federal government’s connection with Fannie Mae and Freddie Mac, a federal jury has granted shareholders of the two enterprises a sum of $612.4 million as compensation.
The court victory for investors is a minor success, given their ongoing efforts to recover over $100 billion in agency profits from the government. This unexpected and significant outcome follows the case’s previous dismissal due to a hung jury, along with similar instances of dismissal.
The collective legal action was initiated as a response to the federal government’s alteration of a shareholder stock repurchase arrangement concerning the two firms. The conflict’s origins trace back to 2008 when the government intervened to rescue Fannie and Freddie, placing them under conservatorship which persists presently. Initially, this conservatorship stipulated the Department of the Treasury injecting up to $100 billion into each enterprise, obtaining 79.9% ownership in stocks.
The initial Treasury investment featured a 10% cash dividend, which changed in 2012 when the government adjusted the bailout conditions. The 10% dividend got replaced by a fresh directive, requiring Fannie and Freddie to surrender all profits to the Treasury Department from January 2013 onwards. Investors of Fannie and Freddie were infuriated as this new ruling essentially negated the profits from their ownership stakes.
Furthermore, the lawsuit contends that by 2012, both the Treasury Department and the Federal Housing Finance Agency (FHFA), responsible for supervising the GSEs, were aware that Fannie and Freddie were about to generate substantial profits.
In the U.S. District Court for the District of Columbia, a jury determined that the FHFA’s implementation of the “net worth sweep,” which directed all profits of Fannie and Freddie to the Treasury Department, was done in an arbitrary or unreasonable manner. As per the verdict, Fannie Mae is set to pay $299.4 million to its junior preferred shareholders, and Freddie will disburse $281.8 million. Additionally, a sum of $31.4 million was granted to Freddie’s common shareholders.
Robert Kravetz, the trial counsel for Bernstein Litowitz Berger & Grossman, the legal team representing shareholders in the class-action lawsuit, expressed thankfulness for the jury’s substantial public service and their verdict.