Updated from 8:42 a.m. ET with market reaction and comments from Hagens Berman Sobol Shapiro LLP and Spector Roseman Kodroff & Willis, P.C.
NEW YORK (TheStreet) -- The first of what is likely to be a series of lawsuits by private shareholders of Fannie Mae (FNMA) and Freddie Mac (FMCC) was filed on Monday, according to a Bloomberg report.
According to the complaint filed in the U.S. Court of Federal Claims in Washington, the government's placement of Fannie and Freddie into conservatorship in September 2008 was "beneficial to the economic welfare of the nation," however, the takeover also "destroyed the value of Fannie Mae's and Freddie Mac's common and preferred stock."
According to the complaint, which seeks $41 billion in damages, the federal government "trampled the private ownership rights" of investors. The complaint, filed by Hagens Berman Sobol Shapiro LLP and Spector Roseman Kodroff & Willis, P.C. (SRKW), also claims "the government bullied and coerced the companies' boards of directors" of Fannie and Freddie to agree to the conservatorship.Named plaintiffs include the main subsidiary of Washington Federal (WAFD) of Seattle, the Austin Police Retirement System. Fannie and Freddie, together known as the government-sponsored enterprises, or GSEs, were taken under government conservatorship in September 2008. The U.S. Treasury holds $189.4 billion in senior preferred share of the GSEs, for bailout assistance, and dividends on all other share classes have been suspended since September 2008. The GSEs continue to play a critical role in mortgage finance, holding roughly $5.2 trillion in mortgage loans and mortgage backed securities as of March 31, and purchasing roughly 90% of newly originated mortgage loans in the U.S. Common shares of the GSEs have rebounded tremendously this year, as the two companies returned to profitability in 2012, and have been paying dividends to the government in sufficient amounts for some private investors to see the possibility for the companies to escape the bailout. Fannie Mae reported a record first-quarter operating profit of $8.1 billion, and also announced on May 9 that it would pay the Treasury a second-quarter dividend of $59.5 billion, after recapturing most of its valuation allowance for deferred tax assets. Freddie Mac reported first-quarter operating earnings of $4.5 billion and announced a second-quarter dividend of $7 billion to the Treasury. Following the June dividend payments from Fannie and Freddie, the government will have received dividends totaling $131.6 billion on its combined GSE preferred investment of $189.4 billion. "The U.S. government paid no heed to the rights and interests of shareholders when it effectively nationalized these two corporations," said Robert Roseman, managing partner of SRKW in a statement. "While other major financial institutions were attempting to minimize their losses during a difficult economy, the government essentially forced Fannie Mae and Freddie Mac to do the exact opposite, expanding its exposure to some of the riskiest assets." Steve Berman, managing partner and co-founder of Hagens Berman, said in a statement that the government was "obligated to provide just compensation under the Fifth Amendment for shareholders who suffered significant financial losses."
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