On July 9, 2013, the Fairholme Fund, a mutual fund with over 170,000 shareholders, announced it would be filing lawsuits in the United States Court of Federal Claims and the United States District Court for the District of Columbia. The Fairholme Fund asserts that its goal is to protect its shareholder rights as an owner of preferred stock in Fannie Mae and Freddie Mac.
According to Bruce R. Berkowitz, the Chief Investment Officer of Fairholme Capital Management, The Fairholme Fund “…is owed a contractually specified, non-cumulative dividend for its investment in these companies.”
Cooper & Kirk, PLLC, on behalf of Fairholme, is challenging the Treasury and the Federal Housing Finance Agency’s alteration of the original Preferred Stock Purchase Agreement in August 2012 with a ‘dividend sweep.’ This newly created ‘dividend sweep’ stipulates that Fannie Mae and Freddie Mac owe all future profits to the Treasury. Fairholme asserts that Treasury’s amendment of this agreement hinders the GSE’s ability to rebuild capital reserves, redeem Treasury’s government stock, or distribute dividends to preferred stockholders. The complaint asserts that Fairholme is entitled to just compensation under the Fifth Amendment of the U.S. Constitution.