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

[doughishere]

Reminder: Joint Status Report in Sweeney's courtroom due this Friday (29th).

 

Earnings in the next month or so should be coming down the line

[Luke 532]

Reminder: Joint Status Report in Sweeney's courtroom due this Friday (29th).

 

Source: Peter A. Chapman / peter@bankrupt.com / (215) 945-7000

(contents and contact info shared with Mr. Chapman's permission)

 

Fairholme and the Government delivered their Joint Status Report to Judge Sweeney late last night, and a copy of that filing is attached to this e-mail message.

 

The proposed schedule starts with resolution of Fairholme's Motion to Compel (Doc. 270 filed Nov. 23, 2015).  The Government filed its Response (Doc. 284) to the Motion to Compel under seal on Jan. 21, 2016.  Absent a request for more time, Fairholme's Reply is due by Feb. 1, 2016, and is likely to be filed under seal.  Judge Sweeney will convene a hearing, likely closed to the public, if she thinks that will be helpful, and she'll issue her decision on the appropriateness of the Government's assertion of the deliberative process privilege, bank examination privilege, and presidential communication privilege.  In response to Judge Sweeney's ruling on the Motion to Compel, Fairholme will receive whatever her order says the Government should turn over.

 

When discovery is wrapped up, Fairholme and the other shareholder-plaintiffs intend to amend their complaints within 45 days.  The Government then intends to file an Omnibus Motion to Dismiss the all of the cases before Judge Sweeney 120 days after the amended complaints are filed.  Within the 90 days following the filing of the Omnibus Motion to Dismiss, the plaintiff-shareholders will file their responses and objections to the Omnibus Motion to Dismiss.  The Government will file its reply in support of its Omnibus Motion to Dismiss within the 90 days thereafter.  Then Judge Sweeney will hold a hearing if she wishes and rule on the Government's Omnibus Motion to Dismiss.

 

Assuming discovery draws to a close on Mar. 31, 2016, the timetable would be:

 

  -- Amended Complaints filed May 15, 2016;

  -- Omnibus Motion to Dismiss filed Sept. 12, 2015;

  -- Responses to the Omnibus Motion to Dismiss filed Dec. 11, 2016;

  -- Reply in support of Omnibus Motion to Dismiss filed Mar. 11, 2017; and

  -- Judge Sweeney's decision on Omnibus Motion to Dismiss some time thereafter. 

13-465-0288.pdf

[Guest cherzeca]

very slow going, especially if sweeney decides she needs to review any of the claimed privilege documents in camera.  as the pats coach would say, it's on to perry and hindes/jacobs

[orthopa]

From an outsider(american citizen)  to the lawyers in this thread...what the hell takes so long? Is it the volume of information/documents that necessitates almost year for this process to occur?

[Luke 532]

I wonder why Fairholme agreed to this lengthy timeline.  Anybody have thoughts on that?  March 2017 if everything goes as planned (and it rarely does) seems a bit extreme to establish jurisdiction.

[orthopa]

I wonder why Fairholme agreed to this lengthy timeline.  Anybody have thoughts on that?  March 2017 if everything goes as planned (and it rarely does) seems a bit extreme to establish jurisdiction.

 

Rarely does it right. We could be looking at this taking 18 months to occur.

[merkhet]

Could be any number of things. I've been wondering the same on my end. Doesn't have to drag as long as it has so far -- so there's a question re why Berkowitz would agree to such a long time period.

[merkhet]

One thought could be that they, like Abrams, think that this requires a new administration that isn't bound by commitment bias. Another thought could be, as others have pointed out, that people were really just using Fairholme's Court of Federal Claims discovery process to get evidence for other cases.

 

It's unclear. Hope Berkowitz gives a little more color in his shareholder letter. In any case, the longer this drags out, the worse it is for the IRR. Hopefully, the Jacobs case goes faster.

[Sunrider]

Apologies if this has been answered - when should we expect to get something in the other cases? It seems very odd to me that the Fairholme one should drag on that long (semi-voluntarily from what I gather here) ... Berkowitz has been in this longer than I have and every additional year reduces the CAGR. How much discretion did they have with this schedule?

Thank you - S.

[merkhet]

Perry Appeal happens in April. Jacobs case has more filings to come in February.

[hardincap]

govt has to win on federal preemption, that HERA somehow has created a conflict with delaware law in the area of permissible preferred stock terms, and the steele reply does a good job on showing there is no preemption.

 

there is a slim chance that sleet finds that the anti-injunction bar in HERA prevents his court from examining legality of NWS under delaware law, but i dont think even lamberth would so hold

 

These two "outs" for the government seem to fail for the exact same reason? There is nothing in HERA that deals with the power to issue stock, so the only way the government could win on preemption is if Sleet interprets FHFA's powers to "manage and operate" the business and to "transfer or sell any asset" as subsuming the power to issue stock that conflicts with 151c. This is the same reasoning one would have to follow to conclude that 4617f bars the courts from examining NWS under corporate law. That reasoning, however, would have such egregious implications that it fails the basic gut check (or "red face test" as you call it).

 

The other "out" is if Sleet goes Lamberth on us and rules that Steele's reading of 151c "reaches too far", without any real analysis. Can Sleet make this ruling without approving Steele's request for certification in delaware supreme court?

[Guest cherzeca]

govt has to win on federal preemption, that HERA somehow has created a conflict with delaware law in the area of permissible preferred stock terms, and the steele reply does a good job on showing there is no preemption.

 

there is a slim chance that sleet finds that the anti-injunction bar in HERA prevents his court from examining legality of NWS under delaware law, but i dont think even lamberth would so hold

 

These two "outs" for the government seem to fail for the exact same reason? There is nothing in HERA that deals with the power to issue stock, so the only way the government could win on preemption is if Sleet interprets FHFA's powers to "manage and operate" the business and to "transfer or sell any asset" as subsuming the power to issue stock that conflicts with 151c. This is the same reasoning one would have to follow to conclude that 4617f bars the courts from examining NWS under corporate law. That reasoning, however, would have such egregious implications that it fails the basic gut check (or "red face test" as you call it).

 

The other "out" is if Sleet goes Lamberth on us and rules that Steele's reading of 151c "reaches too far", without any real analysis. Can Sleet make this ruling without approving Steele's request for certification in delaware supreme court?

 

you going to law school at night, hardincap?  either that or you are not only reading rule of law guy on SA, but you are understanding it!

 

basically yes to all your questions.  fhfa's lawyers have gotten at least lamberth to do a very isolated power spotting exercise in connection with HERA's anti-injunction provision, and the power to manage the GSEs' businesses is a very broad power that subsumes alot of action.  perry plaintiffs' tried to argue at district court that a power has to be understood in relation to its purpose, so that the power to manage business has to be understood in the context of what a conservator charged with rehabilitating and conserving would do.  3rdA is inconsistent with the power/purpose.  perry will be making that same argument on appeal, as well as the securities transaction after sunset date, and others.

 

interestingly, in perry fhfa replied to the steele amicus brief re delaware. look to see if there is a large portion of the perry reply brief, or a reply amicus by steele, in the perry filing tomorrow.  the whole delaware argument might get tucked into the perry appeal (which would be very interesting as lamberth wasnt asked to consider this issue). (i would have thought, at least initially, that fhfa would simply say that ct of appeals shouldnt consider the DGCL question since it wasnt presented by plaintiffs at district court.  cts of appeals review appeals with respect to alleged errors by the court below, and there was no error by lamberth re DGCL. on the other hand, cts of appeals do have the ability to go "outside" the record in the court below)

 

yes, sleet could just decide everything himself and not certify the DGCL question to del sup ct.  why he would od that is beyond me.  as well, he could go lamberth and just say that the NWS is just fhfa taking care of business.  if that, you then know the fix is in

[hardincap]

Those SA articles are gold.. don't know why it hasn't been discussed more.

 

My key part for me:

So, what did the FHFA "succeed" to, when it succeeded to the rights and powers of the directors of FNMA and FMCC when it became a conservator? Did the FHFA suddenly and magically become a "super-director", unbound and unfettered by all law, including the Delaware requirement that if a conservator exercising director power causes the corporation to issue stock, it must comply with preferred stock dividend provisions of DGCL Section 151c? Is there anything in HERA that provides for this extraordinary assertion of power?

[hardincap]

Fairholme added to both commons and preferreds

 

http://www.fairholmefundsinc.com/Reports/FAIRX2015Annual.pdf

[Guest cherzeca]

Fairholme added to both commons and preferreds

 

http://www.fairholmefundsinc.com/Reports/FAIRX2015Annual.pdf

 

roughly $700MM in fmcc/fnma, roughly 6:1 pref to common

 

@hardincap: do you have the 2014 numbers to compare it to?

[hardincap]

I was comparing with his July 2015 report http://www.fairholmefundsinc.com/Reports/FAIRX2015SemiAnnual.pdf

[Guest cherzeca]

I was comparing with his July 2015 report http://www.fairholmefundsinc.com/Reports/FAIRX2015SemiAnnual.pdf

 

thx.  roughly:

40.2MM shares common of fnma/fmcc @ 11/30/2015 v 28.3MM @ 5/31/15

approx 136MM shares of fmcc/fnma pref @11/30/15 v approx 125MM @ 5/31/15

[hardincap]

I was comparing with his July 2015 report http://www.fairholmefundsinc.com/Reports/FAIRX2015SemiAnnual.pdf

 

thx.  roughly:

40.2MM shares common of fnma/fmcc @ 11/30/2015 v 28.3MM @ 5/31/15

approx 136MM shares of fmcc/fnma pref @11/30/15 v approx 125MM @ 5/31/15

 

Went from 11.1% of portfolio to 15.1%.

[Luke 532]

Fairholme added to both commons and preferreds

 

http://www.fairholmefundsinc.com/Reports/FAIRX2015Annual.pdf

 

"Indeed, newly discovered evidence – which shows the government’s defense to be outright false – was subsequently presented..."

[Guest cherzeca]

appellants reply briefs were due 2/2/16 in perry (yesterday). class action plaintiffs brief is posted on docket, but institutional plaintiffs brief (which i am interested in) has not been posted.  curious if anyone knows what's up. perhaps the amici also filed replies and clerk is being slow.

[orthopa]

Fairholme added to both commons and preferreds

 

http://www.fairholmefundsinc.com/Reports/FAIRX2015Annual.pdf

 

"Indeed, newly discovered evidence – which shows the government’s defense to be outright false – was subsequently presented..."

 

I thought this stuff was under seal and not even the clients could see it.

[hardincap]

He's most likely referring to the CFO testimony. "In light of Ms. McFarland’s testimony, Mr. Ugoletti’s sworn statement that neither agency envisioned recognition of the deferred tax assets is not credible"

[Guest cherzeca]

He's most likely referring to the CFO testimony. "In light of Ms. McFarland’s testimony, Mr. Ugoletti’s sworn statement that neither agency envisioned recognition of the deferred tax assets is not credible"

 

his lawyers have said as much in motions to use fairholme testimony in the perry appeal brief...which just hit the docket completely under seal.  it is likely it will be released to public with redactions in a bit.  i was expecting reply briefs by amici as well, but none have hit the docket

[merkhet]

Anyone have a theory for why Berkowitz is highlighting the Tim Howard amicus brief?

[hardincap]

nothing more than his ongoing campaign to dispel myths:

 

http://howardonmortgagefinance.com/2016/02/03/thoughts-on-delaware-amicus-curiae-brief/