Shareholders that challenged the government-sponsored enterprises’ net worth sweep were dealt a setback after a trial in federal court ended with a hung jury, but they aren’t giving up.
“The fight for justice will continue, and we are confident that we will prevail in the next trial,” said Hamish Hume, the plaintiff shareholders’ counsel at Boies Schiller Flexner LLP, in a press statement issued Monday.
At issue in the litigation were 2012 Federal Housing Finance Agency amendments to stock purchase agreements that allowed the Treasury to “sweep up” Fannie Mae and Freddie Mac’s net worth.
Plaintiffs have argued that this was a departure from the original terms of the GSEs’ conservatorship entered into in 2008, which dictated that the Treasury would receive a 10% dividend and 80% of the common stock in return for providing a funding facility to backstop Fannie and Freddie during the Great Recession. Lawyers for the defendants have argued Fannie and Freddie’s earnings didn’t always meet those terms.
A hung jury occurred when eight jurors in a Washington, D.C. court failed to reach a consensus on the question of whether the net worth sweep was improper, as plaintiffs have alleged.
“Private shareholders invested over $33 billion into Fannie and Freddie, $20 billion of which was invested at the behest of regulators during the crisis years of 2007 and 2008,” said Hume. “The government used that money to help Fannie and Freddie during the conservatorship, but showed utter disregard and contempt for the shareholders who invested that money.”
While mistrials are considered to be favorable for defendants, they generally do allow for plaintiffs to continue pursuing a case.
“We will review our options,” an FHFA spokesman said, in response to the shareholders’ indication that they plan to continue the litigation.
The judge will address next steps with both parties.
During the Trump administration, private investors became hopeful that the GSEs could be released from conservatorship in a way that might benefit them. Under the Biden administration, FHFA Director Sandra Thompson also has pledged to work toward releasing Fannie and Freddie from conservatorship, but has been simultaneously focused on expanding their public role in support of affordable housing.