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Common Shareholders of Fannie and Freddie, Including Pershing Square and Three Individuals, File Suit against United States Government
[August 14, 2014]

Common Shareholders of Fannie and Freddie, Including Pershing Square and Three Individuals, File Suit against United States Government

NEW YORK --(Business Wire)--

Today, common shareholders of the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") filed suit in the U.S. Court of Federal Claims seeking to remedy the federal government's unlawful taking of shareholders' rights and property in Fannie and Freddie and other violations of law. The shareholder plaintiffs are three individuals and Pershing Square Capital Management, L.P. ("Pershing Square"). The defendant is the United States government, including the U.S. Department of the Treasury and the Federal Housing Finance Agency ("FHFA").

The complaint challenges the government's ongoing confiscation of all profits of Fannie Mae and Freddie Mac (the "Companies"). According to the filing, the government is expropriating the Companies' profits through a 2012 arrangement (the "Net Worth Sweep Agreements") by which FHFA, purportedly acting as the conservator of the Companies, and Treasury agreed to strip all earnings from both Companies and sweep them to Treasury in cash, every quarter, in perpetuity. These Net Worth Sweeps implement what internal Treasury documents had earlier described as the Administration's "commitment" to "ensure existing common equity holders will not have access to any positive earnings from the [Companies] in the future."

The three individual common shareholders who have brought this suit are a retired nurse who holds common shares of Fannie Mae first purchased over 25 years ago and a retired scientist and retired psychiatric social worker who have hel Fannie Mae common shares for approximately 15 years. They are joined by Pershing Square, which is the Companies' largest common shareholder, with an approximate 10% stake in the outstanding common stock of each Company. Today's complaint follows other lawsuits, brought primarily by institutional shareholders of the Companies' preferred stock, which also challenge the Net Worth Sweep Agreements. The common shareholders bringing today's suit seek to challenge the government's illegal actions and vindicate and protect their rights as common shareholders of the privately owned, for-profit Companies as chartered by Congress.

Applicable law requires FHFA as conservator to "preserve and conserve" the Companies' "assets and property" and to "put [them] in a sound and solvent condition." Instead, through the Net Worth Sweeps the government has taken the Companies' profits for itself without any compensation to the Companies' shareholders. The Net Worth Sweeps treat the Plaintiffs-and all of the other common shareholders-as "shareholders" in name only, rather than as the owners of the Company with relevant property rights as conferred by law. Today's complaint charges that the government's action violates the Takings Clause of the Fifth Amendment to the United States Constitution as well as FHFA's implied contractual duties.

The government's confiscation of the entire earnings of the Companies also violates federal statutes and the government's fiduciary duties to the Companies' shareholders, and the plaintiffs in this case intend to pursue their legal rights on those claims separately in an appropriate forum.

The case is entitled Louise Rafter, Josephine Rattien, Stephen Rattien and Pershing Square Capital Management L.P., plaintiffs, v. The United States of America, defendant, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, nominal defendants. To view the complaint, click here.


Pershing Square, based in New York City, is an SEC (News - Alert)-registered investment advisor to private investment funds. Funds managed by Pershing Square own securities of Fannie Mae and Freddie Mac. Pershing Square may increase, decrease, dispose of, or change the form of its investment in Fannie Mae and Freddie Mac for any or no reason, at any time. Pershing Square disclaims any obligation to notify the market of any such changes.

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