Mutual fund Fairholme Capital Management filed two separate lawsuits in the U.S. Court of Federal Claims and the U.S. District Court to protect its rights as an owner of preferred Fannie Mae and Freddie Mac stock.
Acting on behalf of several shareholders — who are predominantly taxpayers with an average investment in the company of $43,000 — Fairholme Capital’s suit is challenging the 2013 third amendment to the government’s preferred stock purchase agreements that the U.S Treasury and the Federal Housing Finance Agency agreed upon.
Earlier this week, Perry Capital filed a similar suit again the Treasury, claiming the government is illegally seizing profits from Fannie Mae and Freddie Mac and simultaneously destroying shareholders’ holdings.
Deemed the “Net Worth Sweep Amendment,” the third amendment changed the rules regarding the government’s investment in the enterprises. Fairholme is not challenging the 2008 emergency investments by the government into the GSEs, but is contesting the attempt to change the rules of priorities.
“Fairholme’s objective is quite simple. The government set the terms of their 2008 investments and should be held to their original deal,” said Bruce Berkowitz, managing director and chief investment officer of Fairholme Capital Management.
He added, “[The GSEs’] success should surprise no one given the value of Fannie and Freddie. Once the Government has recouped its investment, The Fairholme Fund is owed a contractually specified, non-cumulative dividend for its investment in these companies. As solvent, highly profitable companies, Fannie and Freddie should honor all outstanding obligations to their investors.”
The Fairholme Fund is represented by Cooper & Kirk, and remains independent from other pending litigation involving the GSEs.
As of February, 28, The Fairholme Fund suspended the sales of shares to new investors, including investors seeking to purchase fund shares directly or indirectly through financial intermediaries.