Judge Dismisses Investor Lawsuits Over GSE Profits

A judge in the U.S. District Court for the District of Columbia dismissed claims investors made against the federal government regarding the distributing of GSE profits.

Judge Royce Lambert dismissed lawsuits filed in 2013 by investors at Fairholme Funds, led by Bruce Berkowitz, and Perry Capital with regards to the government's "sweeping" of GSE profits into the U.S. Treasury. The investors believed that the diversion of GSE profits created a "windfall" for the government while short changing GSE shareholders.

Lamberth said in his ruling he believed that the regulator for GSEs Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), and the U.S. Treasury Department had been given the power by Congress to use GSE profits as part of the Housing Economic and Recovery Act.

The judge's decision did not cover a similar lawsuit filed by a group of investors led by Pershing Square CEO William A. Ackman in mid-August alleging that the government's diverting of GSE profits into Treasury equates to taking private property for public use without "just compensation," a practice forbidden by the Fifth Amendment of the U.S. Constitution. Pershing Square holds close to $700 million shares in the two GSEs combined, making it by far the largest non-government owner of GSE common stock.

Fairholme Funds could not be reached for comment on the dismissal of the lawsuit. Spokespeople from FHFA, Pershing Square, and the U.S. Department of Justice all declined to comment on the judge's ruling.