Investors Challenge Fifth Amendment "Taking" by Treasury Department After Fannie Mae/Freddie Mac Bail-Out

WASHINGTON and RADNOR, Pa., July 12, 2013 /PRNewswire/ -- Preferred shareholders of Freddie Mac and Fannie Mae yesterday filed a class action lawsuit challenging the US Government's appropriation of their dividend, liquidation, and related distribution rights in August 2012. 

As part of the 2008 federal bail-out, mortgage giants Fannie Mae and Freddie Mac issued the US Department of Treasury $189 billion of senior preferred stock.  These new securities entitled the Government to be paid dividends on their investment in Fannie and Freddie at a rate of 10% per year.  The junior preferred shareholders received no dividends in the interim.

In 2012, as the real estate market stabilized and began to improve, Fannie and Freddie began generating consistent and growing profits, enabling them to repay the government and resume dividend payments to junior preferred stockholders.  Instead, the US Department of Treasury and the Federal Housing Finance Administration––both arms of the U.S. Government––unilaterally amended the Treasury's senior preferred stock agreements to grant the Government the right to receive all of Fannie and Freddie's profits and net worth as dividends (or as a liquidation preference).  None of these dividend payments are being applied towards paying down the principal of the senior preferred stock; rather, the Government has structured the new contracts to effectuate a "cash sweep" of all of Fannie and Freddie's profits and keep these entitles in a perpetual state of distress. 

Plaintiffs allege that the Government's unilateral  amendment of the senior preferred stock agreements constitutes a "taking" under the Fifth Amendment to the US Constitution requiring payment of just compensation.  They seek to represent a class of Fannie and Freddie junior preferred shareholders who owned their preferred shares on August 17, 2012, and therefore suffered the complete loss of their dividend and liquidation rights.  

Plaintiffs are represented jointly by Hamish Hume of Boies Schiller & Flexner and Lee Rudy and Eric Zagar of Kessler Topaz Meltzer & Check.  Preferred shareholders interested in participating in the lawsuit and protecting their right to receive a recovery are urged to contact plaintiffs' counsel below. 

About Boies Schiller:

Boies, Schiller & Flexner LLP, founded in 1997, has grown to over 250 lawyers practicing in offices strategically located throughout the United States. Over the past ten years BSF has tried more than 350 cases before juries and judges in federal and state courts throughout the United States and participated in more than 150 international arbitration proceedings throughout the world. The Firm regularly serves as lead counsel on complex, high profile global matters.  Boies Schiller is currently litigating a class action complaint against the United States related to the appropriation of the economic and voting rights of AIG's shareholders.

About Kessler Topaz:

Kessler Topaz is a 100-lawyer firm based in Radnor, PA and San Francisco, CA that specializes in class action litigation, primarily on behalf of pension fund investors.  The firm has recovered billions of dollars for investors, including most recently as co-lead counsel in In re Bank of America Securities Litigation (SDNY 2012) ($2.425 billion class settlement), and as co-lead counsel in In re Southern Peru Copper (Del. Ch. 2011) ($2.1 billion trial verdict). 

The full case caption for the Fannie Mae/Freddie Mac class action is Cacciapelle v. United States of America, 13-cv-00385-MMS.

Press Inquiries
Boies, Schiller & Flexner LLP:
Hamish Hume
(202) 237-2727
[email protected]

Kessler Topaz Meltzer & Check, LLP:
Eric Zagar, Esquire
Darren Check, Esquire
(610) 667-7706
[email protected]
[email protected]

SOURCE Kessler Topaz Meltzer & Check, LLP