Judge Dismisses Hedge Funds’ Fannie, Freddie Lawsuits

Oct 1 2014 | 11:02am ET

A court has blocked a group of hedge funds’ efforts to stop the federal government’s seizure of the profits of Fannie Mae and Freddie Mac.

U.S. District Judge Royce Lamberth in Washington, D.C., dismissed lawsuits filed by hedge funds Fairholme Capital Management and Perry Capital. The funds accused the U.S. Treasury of illegally moving to take all of the mortgage giants’ profits at the expense of their preferred shareholders.

Lamberth acknowledged that the change to Fannie and Freddie’s $187.5 billion bailout terms would “raise eyebrows” and “cause discomfort.” Unfortunately for the hedge funds, however, the terms of the preferred stock certificates and the Housing and Economic Recovery Act give the government the power to seize the profits.

Lamberth’s ruling does not affect a similar lawsuit filed by Pershing Square Capital Management on behalf of Fannie and Freddie’s common shareholders. All told, almost 20 lawsuits have been filed over the profit seizures.

It is unclear whether Fairholme and Perry will appeal the dismissal.

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