Fannie Mae, Freddie Mac Face Three Newly Certified Classes in Stock Profit Lawsuit

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Fannie Mae Freddie Mac Stock Profits Class Action Lawsuit Overview

• Who: Fannie Mae and Freddie Mac face three certified classes in a class action lawsuit.
• Why: The three classes are suing the agencies for improper stock trading practices.
• Where: The class action lawsuit was filed in District of Columbia federal court.

A federal judge granted class certification to three classes in a class action lawsuit against Fannie Mae and Freddie Mac that alleges the agencies breached the implied covenant of good faith and fair dealing in their stock certificates.

On Dec. 7, 2021, US District Judge Royce C. Lamberth separated class members by their different claims against the two companies. The Fannie Preferred Class includes anyone who held junior preferred stock in Fannie Mae, the Freddie Preferred Class includes anyone who held junior preferred stock in Freddie Mac and the Freddie Common Class includes anyone who held common stock in Freddie Mac. Shareholders are included as long as they held stock as of Dec. 7.

Each class also includes shareholders’ successors as long as shares are sold after Dec. 7, 2021, and before any final judgment or settlement is made in the class action lawsuit. 

Judge Lamberth also appointed representatives for each class. These lead plaintiffs brought claims against the companies that are representative of the class’ complaints and will lead the case in the interests of their respective classes. 

The Fannie Preferred Class is represented by plaintiffs Joseph Cacciapalle and Barry P. Borodkin, the Freddie Preferred Class is also represented by Joseph Cacciapalle, and the Freddie Common Class is represented by plaintiffs Michelle M. Miller and Timothy J. Cassell.

The parties have 45 days after the entry of Judge Lamberth’s order to submit a mutually satisfactory stipulation and proposed order regarding agreed-upon terms of providing notices to the classes. If the parties cannot reach an agreement, then the Class plaintiffs can move to submit an order regarding notifying the Classes.

Fannie & Freddie Treasury Agreement Fails Stockholders, According to Lawsuit

The class action lawsuit takes issue with the third amendment made to the Senior Preferred Stock Purchase Agreements (PSPAs) between the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac and the US Department of the Treasury. The PSPAs were initially established in 2008 to prevent the GSEs from collapsing in the midst of the housing crisis.

In 2012, the third amendment allowed the Treasury to receive a senior preferred quarterly dividend equal to 100 percent of each company’s net worth exceeding a capital buffer of $3 billion. The buffer would annually decrease down to zero by 2018. Essentially, the Treasury became entitled to the full amount of the GSEs’ net worth upon liquidation, according to court documents. 

The amendment was meant to stop the circular dividends paid to the Treasury from funds drawn from its commitment to Fannie and Freddie. As of February 2018, the Treasury received over $276 billion in dividends from the companies.

Judge Lamberth initially dismissed the class action lawsuit in 2017. The case was then partially affirmed by the D.C. Circuit and remanded back to Judge Lamberth. 

Judge Lamberth dismissed the plaintiffs’ claims of breaching the terms governing dividends, liquidation preferences, and voting rights in the stock certificates for Freddie’s common stock and for both Fannie’s and Freddie’s preferred stock. 

Have you invested in Fannie Mae or Freddie Mac? You may be eligible for this class action! 

The classes are represented by Boies Schiller Flexner LLP, Kessler Topaz Meltzer & Check, LLP, Grant & Eisenhofer, P.A. and Bernstein Litowitz Berger & Grossman LLP. 

The Fannie Mae Freddie Mac Stock Profits Class Action Lawsuit is In re: Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations, Case No. 1:13-mc-01288-RCL, in the US District Court for the District of Columbia. 

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