Judge Margaret Sweeney handed Fairholme Funds a huge victory late last week when she ruled in favor of broad access in discovery to FHFA records going back years, rather than the narrow period in 2012 that the FHFA wanted to limit discovery to.

Sweeney also slapped down the argument from the FHFA that the court lacked authority, reminding the agency that it is not above the law. Fairholme Funds serves as the point of entry for Investors Unite and other GSE shareholders suing the FHFA.

“With respect to defendant’s claim that the court lacks the authority to affect the exercise of the FHFA’s powers or functions, the court agrees with the case law of the United States Court of Appeals for the Ninth Circuit, which states that the FHFA cannot evade judicial review,” Sweeney wrote in her opinion.

Sweeney issued an order and opinion to allow the discovery process to continue in the historic lawsuit.

Sweeney granted discovery from the dates of June 2011 to August 2012, despite the FHFA arguing that it should only allow January 2012 to August 2012.  She also granted discovery from the dates of April 2008 to December 2008, versus the September-December 2008 the government requested.

That is significant in that it will cover more of the pre-decision deliberations Investors Unite says is crucial to its case.

Investors in the GSEs want the mortgage giants to pay shareholder profits it owes, but the GSEs are not doing that as part of the bailout agreement with the federal government.

After Fannie Mae and Freddie Mac were bailed out during the financial crisis and placed into conservatorship, all profits were directed back to the U.S. Treasury.

Now that the government has been paid back, investors want their stake and their rights upheld.

Consumer advocate Ralph Nader, CapWealth Advisor CEO Tim Pagliara, investor Carl Icahn, and dozens of GSE shareholders from 20 states have joined together in this campaign under the banner Investors Unite.

"Theft is not privileged," Pagliara said after the ruling. “The opinion and order from Judge Sweeney is an encouraging step forward for Fannie Mae and Freddie Mac investors and Investors Unite members across the country. Investors deserve to know when the U.S. Treasury knew that Fannie and Freddie would become profitable, and how that factored into the decision-making process around the Third Amendment Sweep.

“This ruling is a clear indication from the court that the discovery process will continue, reaffirming to the government's attorneys that the rule of law will not be violated despite what they may argue,” he said. "Investors Unite will continue working with The FHFA, elected officials and other leaders to ensure that they are taking seriously investor rights as they pertain to the Government-Sponsored Enterprises. A continued focus on the truth will keep the good news coming."

FHFA attorneys introduced the motion for a protective order, saying that to release any documents concerning when and how the companies could be released or revealing any financial projections from years ago would have “dire consequences.”

The government attorneys said that making this information public would tank the MBS market causing interest rates to skyrocket and the world economy to crash.

The attorney for the FHFA also filed a motion asking Sweeney that if this information was turned over to the plaintiffs, they wanted the judge to classify virtually every document as  “protected information.”

Sweeney rejected these arguments, and also agreed with Fairholme attorneys that if a document could be released under an FOI request then it would not be able to be classified as protected.

To read the full opinion and order, click below.