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The Shareholder Lawsuit Remains Strong

The Shareholder Lawsuit Remains Strong

HousingWire was out early yesterday with a report that sent more than a few people into head-scratching mode to figure out just what they were talking about in reporting that a federal judge dealt a blow to shareholders in their legal suits against the U.S. Treasury. Turns out, U.S. District Judge Amy Jackson issued a ruling in a different case, one involving low-income housing tax credits.

Todd Sullivan blogging at ValuePlays has the goods on it, and we encourage you to swing by his informative post but here’s the gist of it:

Plaintiffs in the Sweeney case sued Treasury, not FHFA and did not dispute the terms of the agreement or the agreement itself, they are suing because of a particular action (or lack thereof, the selling of the LIHTC’s) under the agreement.

Fairholme is suing both Treasury and FHFA, they are contesting the legality of enacting the 3rd amendment as well as its terms. All three of these are absent from the case above. The judge ruled that since plaintiffs in Sweeney did not object to the SPSA or formally its terms, the validity of their claims rests upon the terms of that agreement, so, rightfully, they lost.

Since Fairholme and others are contesting all of the above, there can be no rational linkage between this decision and their cases. To be sure I fully expect Treasury/FHFA to use this and go to Judge Sweeney with a motion to halt discovery and simply rule in their favor. But I also fully expect them to lose that. They will do what they have done from day one in this case, cherry pick a line or two from the ruling and omit its context to attempt to sway Sweeney. Plaintiff’s lawyers will point this out and Sweeney will rule in favor of them again as she has done throughout this process to date.

Meanwhile, our own Tim Pagliara connected with HousingWire to help explain what is really going on with the lawsuits:

“Friday’s ruling by Judge Jackson is irrelevant to the core claims in other shareholder lawsuits — namely, that Treasury violated HERA by wiping out shareholders with a net worth sweep,” Pagliara said. “Shareholders will prevail in court because Treasury exceeded its statutory authority by enacting the sweep.”

We’re sure that Treasury will try to use this mix-up to their advantage. We’ll remain vigilant, though, continue efforts to hold the Administration accountable in the fight to preserve shareholders’ rights.