This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Hedge Fund Sets Bush Attack Dogs On Obama in Fannie, Freddie Lawsuit

Stocks in this article: FNMA FMCC FMCKJ CG FNMAS

NEW YORK ( TheStreet) -- Hedge fund Perry Capital has brought out the big legal guns in a challenge to the Obama administration's 2012 amendment to the Treasury's conservatorship of Fannie Mae (FNMA) and Freddie Mac (FMCC).

Perry has hired Gibson Dunn and Crutcher's Ted Olson, U.S. Solicitor General from 2001 to 2004 and possibly the highest-profile conservative litigator in the country. A practiced expert at invalidating U.S. regulations, Olson has argued 59 cases in the Supreme Court, according to his bio on Gibson Dunn's Web site, including the two cases that decided the disputed presidential election of 2000 in favor of George W. Bush. Working alongside Perry and Gibson Dunn is Hamilton Place Strategies, a public relations firm led by former George W. Bush administration staff.

In its lawsuit, filed July 7, Perry argues the 2012 amendment, which sweeps all the profits of Fannie and Freddie into the Treasury, violates the terms of the 2008 conservatorship of the Government Sponsored Enterprises (GSEs). Under the 2008 deal, the Treasury acquired preferred shares worth $1 billion in the GSEs, paying 10% annual dividends. The Treasury also got warrants to buy 80% of the outstanding common stock and agreed to lend up to $100 billion to the GSEs, a total that was later raised to $200 billion.

Hedge funds began buying preferred shares of Fannie and Freddie prior to the 2012 amendment on the theory that the GSEs would become profitable enough to repay their debt to the Treasury with money left over to restore the dividends. In its lawsuit, Perry Capital disclosed it began buying GSE preferred shares in 2010. Other big name investors who have bought Fannie and Freddie preferred shares include Fairholme Funds and, reportedly, Paulson & Co. and The Carlyle Group's (CG) Claren Road Asset Management.

But the 2012 amendment effectively changed the rules in the middle of the game, Perry's lawsuit argues.

By placing Fannie and Freddie under conservatorship in 2008, their regulator, the Federal Housing Finance Authority, caused private investors to "reasonably expect that the principles of conservatorship -- not receivership -- would guide the government's actions," states a press release from Gibson Dunn which summarizes the complaint. "As conservator, the statute requires FHFA to preserve the assets of Fannie Mae and Freddie Mac, not liquidate them. When changing the rules governing Treasury's investment, Treasury and the FHFA announced that they were beginning the process of winding down the companies -- the exact opposite of what the statute explicitly requires, and depriving private investors of their rights."

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs