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Investors File Second Suit Over GSE Profits

courtroom-scalesFor the second time in as many days, New York-based hedge fund Pershing Square Capital Management sued the U.S. government over the handling of Fannie Mae [1] and Freddie Mac [2] profits.

Pershing Square, led by CEO William A. Ackman, and other plaintiffs combined to file a lawsuit on August 16 [3] with  the U.S. Federal Court of Claims alleging that the government was infringing on common shareholders' rights by diverting GSE profits into the U.S. Department of Treasury [4], a  practice started in 2012.

The next day, August 17, Pershing Square filed a second lawsuit against the federal government, this time in the U.S. District Court. In the second suit, Pershing Square suggested that the GSE dividends being diverted into Treasury, which amount to billions of dollars, should be divided among the common shareholders for the GSEs.

The new complaint made by Pershing Square alleged that the company was told the GSE stockholders did not have fundamental shareholder rights. According to the complaint, the Federal Housing Finance Agency (FHFA), conservator for both GSEs following the government's bailout of Fannie Mae and Freddie Mac in 2008, refused to allow Pershing Square to inspect books and records despite written demands to the FHFA board of directors made by Pershing.

Pershing Square holds more than 170 million shares and has close to $700 million invested in both GSEs, making it the largest Fannie Mae/Freddie Mac shareholder by far. Pershing's stake in both GSEs is close to 10 percent. The original lawsuit alleged that by sweeping GSE profits into Treasury, the government was taking private property for public use without "just compensation," which is in violation of the Fifth Amendment of the U.S. Constitution.

Spokespeople for both Treasury and FHFA declined to comment on the second lawsuit.