Fairholme ‘Disappointed’ By Fannie, Freddie Ruling

Oct 2 2014 | 7:01am ET

A major investor in Fannie Mae and Freddie Mac said it was “disappointed” by the failure of its lawsuit against the U.S. government—but didn’t say what its next steps would be.

Fairholme Capital Management was among a number of hedge funds to sue the U.S. Treasury after it moved in 2012 to seize all of the profits from the two government-backed mortgage giants, which required $187.5 billion in bailout money during the financial crisis. A federal judge this week dismissed Fairholme’s lawsuit—as well as suits filed by fellow preferred shareholders Perry Capital—ruling that the government had the right to change the terms of the companies’ bailout.

Fairholme said it would continue to “vigorously pursue the enforcement of existing contractual claims,” but did not say whether it would appeal the ruling.

“Although litigation is a lengthy process, shareholder-owned Fannie Mae and Freddie Mac remain vitally important and increasingly valuable to all constituents,” Fairholme said.

A similar lawsuit challenging the profit seizure filed by Pershing Square Capital Management remains intact. Pershing Square owns common shares of Fannie and Freddie, unlike Fairholme and Perry, who are preferred shareholders. U.S. District Judge Royce Lamberth specifically cited the terms of those preferred stock certificates in his dismissal.

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