[August 15, 2014]
By Jonathan Stempel and Svea Herbst-Bayliss
(Reuters) - Pershing Square
Capital Management LP, the hedge fund firm run by
William Ackman, has sued the U.S. government, claiming
that its stripping of Fannie Mae's and Freddie Mac's
profit illegally short changes investors in the mortgage
companies' common stock.
In a complaint filed on Thursday with the U.S. Court of Federal
Claims in Washington, D.C., Pershing is challenging the government's
"brazen" practice since 2012 of funneling virtually all profit from
Fannie <FNMA.OB> and Freddie <FMCC.OB> into the U.S. Treasury
Department's coffers.
It said this will have by next month created a $130 billion
"windfall" through the "confiscation of the entire net worth" of
both companies, with an eye to winding them down.
"The net worth sweeps make plaintiffs - and all of the other common
shareholders - 'shareholders' in name only," according to the
complaint, which three retirees who own Fannie Mae stock have joined
as plaintiffs.
Pershing accused the government of violating the Fifth Amendment of
the U.S. Constitution by taking private property for public use
without just compensation. It seeks damages and other remedies.
The Treasury Department declined to comment. The Federal Housing
Finance Agency, which is Fannie's and Freddie's conservator, did not
immediately respond to a similar request.
Pershing's lawsuit adds to public battles being waged by Ackman,
including a bid with Valeant Pharmaceuticals International Inc <VRX.TO>
for Botox maker Allergan Inc <AGN.N>, and a campaign against
nutrition company Herbalife Ltd <HLF.N>, which he calls a pyramid
scheme, a characterization the company denies.
Other investors, including hedge fund firm Perry Capital LLC and
Bruce Berkowitz's Fairholme Capital Management LLC, have also sued
the government over Fannie and Freddie, which were bailed out in
September 2008 amid mounting mortgage losses.
But those lawsuits have often focused on the companies' preferred
stock, which threw off 10 percent dividends before they were
eliminated in 2012.
In contrast, Ackman's lawsuit focuses on common shareholders.
Pershing disclosed last November it had invested close to a
half-billion dollars for common share stakes of 9.98 percent in
Fannie Mae and 9.77 percent in Freddie Mac.
Both companies' shares have risen by roughly one-half since the week
that Ackman revealed his stakes, and Berkowitz proposed that
Fairholme and other investors recapitalize both companies.
In Thursday trading, Fannie rose 14 cents to $3.99, and Freddie rose
15 cents to $3.97.
The Court of Federal Claims handles lawsuits seeking money from the
government.
It is also where former American International Group Inc <AIG.N>
Chairman Maurice "Hank" Greenberg is suing the United States over
the insurer's $182.3 billion bailout, which he said illegally
diluted the AIG stake of his Starr International Co.
The case is Rafter et al v. U.S. et al, U.S. Court of Federal
Claims.
(Reporting by Jonathan Stempel in New York, Svea Herbst-Bayliss in
Boston and Jason Lange in Washington, D.C.; Editing by Lisa Shumaker
and Ken Wills)
