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

[merkhet]

More docs

 

https://www.dropbox.com/s/rdnky99g1aohh0f/2015-07-14%20Government%27s%20Reply%20to%20Plaintiffs%20Opposition%20to%20Motion%20for%20Extension.pdf?dl=0

 

https://www.dropbox.com/s/jm3zsx3tjhu8o3r/2015-07-14%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20Deloitte%20Documents.pdf?dl=0

 

https://www.dropbox.com/s/g5fyaad9z3ne3w3/2015-07-14%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20Fannie%20Mae%20Documents.pdf?dl=0

 

https://www.dropbox.com/s/el1bv0cmanfb60d/2015-07-14%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20PwC%20Documents.pdf?dl=0

 

https://www.dropbox.com/s/t1o40b7uv4174hd/2015-07-14%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20Treasury%20and%20FHFA%20Documents.pdf?dl=0

[TwoCitiesCapital]

Merkhet,

 

I've always thought this would go to trial and that the duration of the trade would be several years with all of the litigation/appeals with obvious pops/drops upon each decision. It seems like you are thinking that a settlement might be an alternative that is in the cards.

 

What would the time frame on a settlement be? Maybe expressed as a range as the nearest possible to furthest guess? I'm just curious how much that would effect my time horizon for the position if the settlement becomes the most likely option.

[onyx1]

More docs

 

https://www.dropbox.com/s/rdnky99g1aohh0f/2015-07-14%20Government%27s%20Reply%20to%20Plaintiffs%20Opposition%20to%20Motion%20for%20Extension.pdf?dl=0

 

https://www.dropbox.com/s/jm3zsx3tjhu8o3r/2015-07-14%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20Deloitte%20Documents.pdf?dl=0

 

https://www.dropbox.com/s/g5fyaad9z3ne3w3/2015-07-14%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20Fannie%20Mae%20Documents.pdf?dl=0

 

https://www.dropbox.com/s/el1bv0cmanfb60d/2015-07-14%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20PwC%20Documents.pdf?dl=0

 

https://www.dropbox.com/s/t1o40b7uv4174hd/2015-07-14%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20Treasury%20and%20FHFA%20Documents.pdf?dl=0

 

 

Great material.  It doesn't take a lot of imagination to sense what is behind the redacted portions of these Plaintiff motions to unseal.  The government's case appears full of contradictions.

[merkhet]

Merkhet,

 

I've always thought this would go to trial and that the duration of the trade would be several years with all of the litigation/appeals with obvious pops/drops upon each decision. It seems like you are thinking that a settlement might be an alternative that is in the cards.

 

What would the time frame on a settlement be? Maybe expressed as a range as the nearest possible to furthest guess? I'm just curious how much that would effect my time horizon for the position if the settlement becomes the most likely option.

 

It could be tomorrow or it could be a year from now. I don't know that I have a ton of insight into the timing of a possible settlement. The motions to unseal are a pretty big deal, so if they are a lynchpin, then a settlement could be close.

[merkhet]

Redacted motion for the Grant Thorton documents

 

https://www.dropbox.com/s/rdnky99g1aohh0f/2015-07-14%20Government%27s%20Reply%20to%20Plaintiffs%20Opposition%20to%20Motion%20for%20Extension.pdf?dl=0

[doughishere]

Redacted motion for the Grant Thorton documents

 

https://www.dropbox.com/s/rdnky99g1aohh0f/2015-07-14%20Government%27s%20Reply%20to%20Plaintiffs%20Opposition%20to%20Motion%20for%20Extension.pdf?dl=0

 

 

Fairholmes hard at work today: Via GSE Links

 

Fairholme's motion to remove the 'Protected Information' designation from certain Fannie Mae documents.

 

Fairholme's motion to remove the 'Protected Information' designation from certain Deloitte documents.

 

Fairholme's motion to remove the 'Protected Information' designation from certain PricewaterhouseCooper documents.

 

Fairholme's motion to remove the 'Protected Information' designation from certain Treasury and FHFA documents.

 

Fairholme's motion to remove the 'Protected Information' designation from certain Grant Thornton documents.

 

 

[Mephistopheles]

Merkhet,

 

I've always thought this would go to trial and that the duration of the trade would be several years with all of the litigation/appeals with obvious pops/drops upon each decision. It seems like you are thinking that a settlement might be an alternative that is in the cards.

 

What would the time frame on a settlement be? Maybe expressed as a range as the nearest possible to furthest guess? I'm just curious how much that would effect my time horizon for the position if the settlement becomes the most likely option.

 

It could be tomorrow or it could be a year from now. I don't know that I have a ton of insight into the timing of a possible settlement. The motions to unseal are a pretty big deal, so if they are a lynchpin, then a settlement could be close.

 

Say the judge grants the motion to unseal, which makes the government want to settle, and they make a deal with Fairholme which keeps the material private in exchange for an end to the 3rd amendment. Would this mean that NYT and other 3rd parties can't unseal the motions? If the judge grants unsealing, can that mean that anyone can just release them, at which point the use of it as leverage to settle doesn't work anymore?

[merkhet]

Actually, Fairholme isn't doing anything today, it's just the court releasing the redacted motions.

 

I would highly recommend that everyone read through the redacted motions. Here are the parts that I found particularly interesting:

 

Government's Response to Fairholme's Opposition to Government's Extension of Time.

 

More importantly, the purpose of the limited discovery currently taking place in this case is to establish whether this Court possesses jurisdiction to entertain plaintiffs’ claims – it is not, as plaintiffs suggest, general merits discovery in the “prosecution of their claim” for a Fifth Amendment taking. The issue of whether this Court possesses jurisdiction to decide plaintiffs’ takings claims is a legal question that counsel for plaintiffs are perfectly capable of addressing without the involvement of the plaintiffs themselves. Moreover, even to the extent that the “jurisdictional discovery” necessarily implicates factual matters, the topics of inquiry authorized by the Court solely involve the actions of the Government and of the conservator of Fannie Mae and Freddie Mac. Because the factual record that is currently being developed in jurisdictional discovery has no connection to the actions or expectations of the plaintiff shareholders themselves, counsel for plaintiffs cannot establish that they are somehow hamstrung by their clients’ inability to view certain documents. In fact, counsel for plaintiffs have not even attempted to explain how their shareholder clients could help them at this stage of the case.

 

This is probably what the Government will be arguing in its response to Fairholme's Motion to Unseal -- that the jurisdictional discovery does not require anything other than legal analysis, so there's no reason for Fairholme to have to involve anyone else in the analysis. However, that's not actually the standard -- the standard is that the information actually be required to be kept under seal because it falls under the definition of protected information.

 

Finally, plaintiff shareholders have already demonstrated their eagerness to share documents produced by the Government in the public domain for their own economic benefit, as evidenced by their use of the Government’s provisional privilege logs.

 

This is nonsensical given that I can't tell how Fairholme received any sort of economic benefit from disclosing the privilege log in February 2012. And also, still not the point! The point is whether the information deserves to be under seal.

 

Redacted Deloitte Motion:

 

There is an internal memo dated March 23, 2012 from Deloitte that indicates that Treasury is in control of FHFA.

 

Redacted Fannie Mae Motion:

 

There is a July 19, 2012 board meeting presentation that shows that there was no GSE death spiral. Also, there is apparently an August 9, 2012 Treasury meeting presentation showing the same.

 

Redacted Grant Thorton Motion:

 

The redaction seems to show that Grant Thorton's documents/analysis does not show that the GSEs were going to have a circular draw. There is a lot redacted here, so it's hard to tell much more.

 

Redacted PwC Motion:

 

There is apparently a Freddie Mac consultation memo that directly contradicts the idea that Treasury does not control FHFA. Moreover, there seems to be an August 7, 2012 PwC memo that also contradicts the idea that the GSEs would be unable to meet the 10% dividend requirements.

 

Redacted Treasury & FHFA Motion: (save the best for last)

 

There is apparently an August 2008 memo that talks about the DTAs. Probably indicating that they would have to write down the DTAs but that the DTAs would come back with profitability.

 

Mario Ugoletti wrote an e-amil which suggests that Treasury does have control of FHFA.

 

And last, but not least, there is an e-mail suggesting that there was a political motivation behind the Net Worth Sweep -- my guess is that the e-mail suggest that the Administration could use the GSE cash flows to avoid hitting the debt ceiling.

 

 

[merkhet]

Say the judge grants the motion to unseal, which makes the government want to settle, and they make a deal with Fairholme which keeps the material private in exchange for an end to the 3rd amendment. Would this mean that NYT and other 3rd parties can't unseal the motions? If the judge grants unsealing, can that mean that anyone can just release them, at which point the use of it as leverage to settle doesn't work anymore?

 

If the judge grants the motion to unseal, I think the government won't settle. At that point, the damaging information is already out there, and they might as well bet their bottom dollar and see if they can be redeemed through the legal process. Imagine borrowing money from a loan shark to go gambling and losing 80% of the money. Well, you might as well bet the remaining 20% because if you don't, you're going to get your legs broken anyway but if you win, you might come out even.

 

I'm unclear on what happens to the New York Times filing if the government decides to do something to settle this stuff before the judge grants any of the motions to unseal.

[Mephistopheles]

Say the judge grants the motion to unseal, which makes the government want to settle, and they make a deal with Fairholme which keeps the material private in exchange for an end to the 3rd amendment. Would this mean that NYT and other 3rd parties can't unseal the motions? If the judge grants unsealing, can that mean that anyone can just release them, at which point the use of it as leverage to settle doesn't work anymore?

 

If the judge grants the motion to unseal, I think the government won't settle. At that point, the damaging information is already out there, and they might as well bet their bottom dollar and see if they can be redeemed through the legal process. Imagine borrowing money from a loan shark to go gambling and losing 80% of the money. Well, you might as well bet the remaining 20% because if you don't, you're going to get your legs broken anyway but if you win, you might come out even.

 

I'm unclear on what happens to the New York Times filing if the government decides to do something to settle this stuff before the judge grants any of the motions to unseal.

 

Oh I see what you mean now, I think. So you're saying that making the documents public will not remove the motivation to settle, but simply the judge granting the motion to unseal will. So it's in our best interest that Judge Sweeney rules in favor of the government??

[merkhet]

No. That's not what I'm saying at all.

 

The threat of making things public is what might force a settlement. Actually making things public would remove the incentive to settle.

 

If Sweeney rules for the government on non-disclosure, then we will have to move on to trial and it will take longer.

[merkhet]

Another redacted motion was released today, this one on Freddie Mac documents.

 

https://www.dropbox.com/s/og946x4jcc4awtc/2015-07-15%20Plaintiffs%20Redacted%20Motion%20to%20Unseal%20Freddie%20Mac%20Documents.pdf?dl=0

[doughishere]

The unredacted information relates to Freddie Mac’s understanding of the political nature of the Net Worth Sweep. Clearly, this does not bear on current market conditions. The unredacted information is relevant to a past event rather than to presenteconomic circumstances,4 but, as importantly, the information undercuts a key claim made by the Government in this and related litigation.

 

 

[orthopa]

Actually, Fairholme isn't doing anything today, it's just the court releasing the redacted motions.

 

I would highly recommend that everyone read through the redacted motions. Here are the parts that I found particularly interesting:

 

Government's Response to Fairholme's Opposition to Government's Extension of Time.

 

More importantly, the purpose of the limited discovery currently taking place in this case is to establish whether this Court possesses jurisdiction to entertain plaintiffs’ claims – it is not, as plaintiffs suggest, general merits discovery in the “prosecution of their claim” for a Fifth Amendment taking. The issue of whether this Court possesses jurisdiction to decide plaintiffs’ takings claims is a legal question that counsel for plaintiffs are perfectly capable of addressing without the involvement of the plaintiffs themselves. Moreover, even to the extent that the “jurisdictional discovery” necessarily implicates factual matters, the topics of inquiry authorized by the Court solely involve the actions of the Government and of the conservator of Fannie Mae and Freddie Mac. Because the factual record that is currently being developed in jurisdictional discovery has no connection to the actions or expectations of the plaintiff shareholders themselves, counsel for plaintiffs cannot establish that they are somehow hamstrung by their clients’ inability to view certain documents. In fact, counsel for plaintiffs have not even attempted to explain how their shareholder clients could help them at this stage of the case.

 

This is probably what the Government will be arguing in its response to Fairholme's Motion to Unseal -- that the jurisdictional discovery does not require anything other than legal analysis, so there's no reason for Fairholme to have to involve anyone else in the analysis. However, that's not actually the standard -- the standard is that the information actually be required to be kept under seal because it falls under the definition of protected information.

 

Finally, plaintiff shareholders have already demonstrated their eagerness to share documents produced by the Government in the public domain for their own economic benefit, as evidenced by their use of the Government’s provisional privilege logs.

 

This is nonsensical given that I can't tell how Fairholme received any sort of economic benefit from disclosing the privilege log in February 2012. And also, still not the point! The point is whether the information deserves to be under seal.

 

Redacted Deloitte Motion:

 

There is an internal memo dated March 23, 2012 from Deloitte that indicates that Treasury is in control of FHFA.

 

Redacted Fannie Mae Motion:

 

There is a July 19, 2012 board meeting presentation that shows that there was no GSE death spiral. Also, there is apparently an August 9, 2012 Treasury meeting presentation showing the same.

 

Redacted Grant Thorton Motion:

 

The redaction seems to show that Grant Thorton's documents/analysis does not show that the GSEs were going to have a circular draw. There is a lot redacted here, so it's hard to tell much more.

 

Redacted PwC Motion:

 

There is apparently a Freddie Mac consultation memo that directly contradicts the idea that Treasury does not control FHFA. Moreover, there seems to be an August 7, 2012 PwC memo that also contradicts the idea that the GSEs would be unable to meet the 10% dividend requirements.

 

Redacted Treasury & FHFA Motion: (save the best for last)

 

There is apparently an August 2008 memo that talks about the DTAs. Probably indicating that they would have to write down the DTAs but that the DTAs would come back with profitability.

 

Mario Ugoletti wrote an e-amil which suggests that Treasury does have control of FHFA.

 

And last, but not least, there is an e-mail suggesting that there was a political motivation behind the Net Worth Sweep -- my guess is that the e-mail suggest that the Administration could use the GSE cash flows to avoid hitting the debt ceiling.

 

These all seem to be pretty damning documents. Makes me wonder how shareholders could lose now? Its it as obvious as it seems or am I missing something. I can keep up on this legal verbage for sh*t though.

[merkhet]

Looks like the deadline has been extended until August 10th, 2015.

 

https://www.dropbox.com/s/ylhxz23usa0ufiu/2015-07-15%20Order%20on%20Motion%20for%20Extension%20for%20Fairholme.pdf?dl=0

[Luke 532]

Ackman (Rafter case) granted access to jurisdictional discovery materials in the Fairholme case.

http://gselinks.com/Court_Filings/Rafter/14-740-0011.pdf

[doughishere]

Ackman (Rafter case) granted access to jurisdictional discovery materials in the Fairholme case.

http://gselinks.com/Court_Filings/Rafter/14-740-0011.pdf

 

here comes the cavalry.

[orthopa]

FWIW  bought more common today. Hopefully not anchor bias but hard to see how shareholders lose this one.

[Mephistopheles]

Ackman (Rafter case) granted access to jurisdictional discovery materials in the Fairholme case.

http://gselinks.com/Court_Filings/Rafter/14-740-0011.pdf

 

here comes the cavalry.

 

Government should prepare for a nuclear winter.

[morningstar]

These all seem to be pretty damning documents. Makes me wonder how shareholders could lose now? Its it as obvious as it seems or am I missing something. I can keep up on this legal verbage for sh*t though.

 

There's still probably a healthy gap from this sort of document to being certain a court will grant relief, I think. e.g. if you go back to the Lamberth decision, he pretty much concludes that the reasons for the FHFA's actions are not relevant, so depending on the claim it's not clear if these documents would matter much in a court's decision. That said this filing is obviously good news!

[Mephistopheles]

These all seem to be pretty damning documents. Makes me wonder how shareholders could lose now? Its it as obvious as it seems or am I missing something. I can keep up on this legal verbage for sh*t though.

 

There's still probably a healthy gap from this sort of document to being certain a court will grant relief, I think. e.g. if you go back to the Lamberth decision, he pretty much concludes that the reasons for the FHFA's actions are not relevant, so depending on the claim it's not clear if these documents would matter much in a court's decision. That said this filing is obviously good news!

 

Lamberth basically spelled out that HERA itself is unconstitutional; and because it says FHFA can't be challenged in court, he threw the case out. Which makes me think - there are so many cases here, some challenging FHFA, some challenging Treasury. Why not open a front against Congress/HERA?

[merkhet]

These all seem to be pretty damning documents. Makes me wonder how shareholders could lose now? Its it as obvious as it seems or am I missing something. I can keep up on this legal verbage for sh*t though.

 

There's still probably a healthy gap from this sort of document to being certain a court will grant relief, I think. e.g. if you go back to the Lamberth decision, he pretty much concludes that the reasons for the FHFA's actions are not relevant, so depending on the claim it's not clear if these documents would matter much in a court's decision. That said this filing is obviously good news!

 

I think the Amici Curiae from former Delaware Supreme Court Justice Myron Steele is more helpful than the documents in the Perry brief if the appeals court agrees that FHFA has broad discretion on how it operates as a conservator. (https://www.dropbox.com/s/iyhdmn2o1vnhuy3/2015-07-06%20myron%20steele%20amicus%20curiae%20brief.pdf?dl=0)

 

However, it remains to be seen whether using the GSE cash flow for political purposes (allegedly to keep from hitting the debt ceiling) would be a permissible conservator action. I think that's where the action is in terms of the appeal re FHFA's powers as conservator.

[TwoCitiesCapital]

These all seem to be pretty damning documents. Makes me wonder how shareholders could lose now? Its it as obvious as it seems or am I missing something. I can keep up on this legal verbage for sh*t though.

 

There's still probably a healthy gap from this sort of document to being certain a court will grant relief, I think. e.g. if you go back to the Lamberth decision, he pretty much concludes that the reasons for the FHFA's actions are not relevant, so depending on the claim it's not clear if these documents would matter much in a court's decision. That said this filing is obviously good news!

 

I think the Amici Curiae from former Delaware Supreme Court Justice Myron Steele is more helpful than the documents in the Perry brief if the appeals court agrees that FHFA has broad discretion on how it operates as a conservator. (https://www.dropbox.com/s/iyhdmn2o1vnhuy3/2015-07-06%20myron%20steele%20amicus%20curiae%20brief.pdf?dl=0)

 

However, it remains to be seen whether using the GSE cash flow for political purposes (allegedly to keep from hitting the debt ceiling) would be a permissible conservator action. I think that's where the action is in terms of the appeal re FHFA's powers as conservator.

 

I think the very notion of that would be a direct violation of their role as a conservator, no? Why should the FHFA give a damn about the debt ceiling or federal spending period. Their job was to rehabilitate Fannie and Freddie. If they chose to pass along those profits to prevent a politically created crisis, than I think it clearly shows they were derelict in their actions as a conservator OR that they were operating under the sway of the Treasury.

 

My uncertainty is surrounding the court's interpretation of how much leeway the FHFA should have in enacting their duties as conservator and level of the bar of reasonableness that they have to surpass to justify their decisions. It might be a real, real, real low bar....

[merkhet]

Lamberth interpreted it a as a very low bar. However, it's possible that this doesn't even pass that bar. Hard to tell -- which is why I think Myron Steele's argument that the preferred shares are, by law, void is a much better argument.

[morningstar]

These all seem to be pretty damning documents. Makes me wonder how shareholders could lose now? Its it as obvious as it seems or am I missing something. I can keep up on this legal verbage for sh*t though.

 

There's still probably a healthy gap from this sort of document to being certain a court will grant relief, I think. e.g. if you go back to the Lamberth decision, he pretty much concludes that the reasons for the FHFA's actions are not relevant, so depending on the claim it's not clear if these documents would matter much in a court's decision. That said this filing is obviously good news!

 

I think the Amici Curiae from former Delaware Supreme Court Justice Myron Steele is more helpful than the documents in the Perry brief if the appeals court agrees that FHFA has broad discretion on how it operates as a conservator. (https://www.dropbox.com/s/iyhdmn2o1vnhuy3/2015-07-06%20myron%20steele%20amicus%20curiae%20brief.pdf?dl=0)

 

However, it remains to be seen whether using the GSE cash flow for political purposes (allegedly to keep from hitting the debt ceiling) would be a permissible conservator action. I think that's where the action is in terms of the appeal re FHFA's powers as conservator.

 

The Steele brief felt pretty valueless to me unless someone has a predilection to rule against the government and is looking for an easy technical reason, but perhaps more qualified legal minds would disagree. Maybe there is some precedent that would invalidate setting a rate proportional to net worth, but Steele doesn't provide it, and in the absence of that why would this be a compelling argument? Meanwhile he gives the definition that "“in preference to” means that dividends cannot be paid on junior securities until full cumulative dividends are paid on the senior security" while claiming that this is not true of the relationship between the senior preferred and other securities post the Sweep, which doesn't seem at all convincing.

 

I agree that the best evidence is material that demonstrates a muddled distinction between FHFA and Treasury and thereby taint the FHFA's actions with the Treasury's own obviously political motives. Because I think just viewed on its face, you could easily argue (and the government will) that the Sweep is totally consistent with the FHFA's mission.