In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations

Court: U.S. District Court, District of Columbia
Case Number: 13-mc-1288 (RLW)
Judge: Hon. Robert L. Wilkins
Case Contacts: David R. Stickney, David Kaplan, Lucas E. Gilmore

This is a consolidated class action brought on behalf of preferred and common stockholders of Fannie Mae and Freddie Mac (the “Companies”), and a derivative action on behalf of Fannie Mae, challenging the “Net Worth Sweep” imposed on the Companies by the federal government in August 2012 through an amendment to the government’s Senior Preferred Stock Purchase Agreements (“PSPAs”) with the Companies.  Under the Net Worth Sweep – which was effected by the Treasury Department and the Federal Housing Finance Agency (“FHFA”), as the Companies’ conservator, without the consent of the Companies’ other stockholders – Fannie Mae and Freddie Mac generally must pay the Treasury dividends of 100% of all the Companies’ current and future profits.  As of December 2013, the Companies will have paid the Treasury over $185 billion in total dividend payments under the Net Worth Sweep.  As a result of the Third Amendment, Fannie Mae and Freddie Mac will not have the ability to rebuild their capital reserves, or to distribute dividends to private shareholders.  Further, the Third Amendment deprives the Company’s private shareholders of their right to receive their liquidation preference upon the dissolution, liquidation or winding up of the Companies.  The action alleges that the Net Worth Sweep violates shareholders’ contractual and constitutional rights, and constitutes a breach of fiduciary duty by FHFA and the Treasury.

Procedural History.  Beginning in July 2013, several class and derivative complaints were filed by the Companies’ stockholders in the U.S. District Court for the District of Columbia challenging the Net Worth Sweep.  On November 18, 2013, the Honorable Robert L. Wilkins appointed BLB&G as Interim Co-Lead Class Counsel.  On December 3, 2013, BLB&G and the other Co-Interim Lead Counsel filed the Consolidated Amended Class Action and Derivative Complaint (“Complaint”).  The Complaint asserts claims for breach of contract and breach of the covenant of good faith and fair dealing against the FHFA and the Companies on behalf of Fannie Mae Preferred and Freddie Mac Preferred and common stock shareholders.  The Complaint also asserts claims for just compensation under the Takings Clause of the Fifth Amendment against FHFA and the Treasury on behalf of Fannie Mae and Freddie Mac preferred and common stock shareholders who suffered less than $10,000 damages as a result of the Third Amendment.  Finally, the Complaint asserts a derivative claim on behalf of Fannie Mae for breach of fiduciary duty against the Treasury and FHFA. 

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