Fairholme Wins Discovery Against Treasury In Fannie, Freddie Suit

Feb 27 2014 | 11:38am ET

Fairholme Capital Management can collect evidence from the U.S. Treasury Department about the bailout of Fannie Mae and Freddie Mac.

Fairholme’s mutual fund arm sued the Treasury last summer after it moved to seize all of the profits of the mortgage giants, echoing a similar complaint from Perry Capital. Yesterday, U.S. Federal Claims Court Judge Margaret Sweeney gave permission for Fairholme to conduct discovery.

At issue is whether the future profitability of Fannie and Freddie—which the government has pledged to shut down—can be determined. The U.S. says it cannot, because both companies are currently under federal conservatorship.

But Sweeney wrote that “discovery will enable plaintiffs to confirm that such evidence exists with regard to profitability and additionally answer the question as to when, and how, the conservatorship will end.”

Sweeney said that after Fairholme had gathered its evidence, she would consider the government’s bid to have the lawsuit dismissed.

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