This is the second wave of suits filedrnin the last month. On June 10 Washington Federal Bank, the City ofrnAustin Texas Police Retirement System, and Michael McCredy Baker,rnidentified as an individual shareholder sued claiming that, while thern2008 takeover of Fannie Mae and Freddie Mac by the government mayrnhave been beneficial to the economy, it was illegal,rnunconstitutional, and cost investors billions of dollars.  </p

In its suit Fairholme CapitalrnManagement says that the government is collecting significantrnrevenues because of changes it made last year to the preferredrnsecurities agreement wherein it now sweeps all profits above a bufferrnamount into the U.S. Treasury in lieu of the 10 percent quarterlyrndividend required under the original agreement. The GSEs are notrnallowed to build any capital reserves and the amounts paid tornTreasury do not count toward paying back the billions of dollarsrnTreasury contributed to shoring up the companies as they rebuiltrntheir businesses. </p

The Perry suit maintains that the U.S. Treasury could collect morernthan $200 billion of profit from the two companies. “This blatantrnoverreach by the federal government to seize all of the companies’rnprofits at the expense of the companies and all of their privaterninvestors is unlawful and must be stopped,” the lawsuit says. </p

Reuters News Agency quotes Fairholmernhead Bruce Berkowitz as saying, “Fannie Mae and Freddie Mac arernrapidly repaying the government. As solvent, highly profitablerncompanies, Fannie and Freddie should honor all outstandingrnobligations to their investors.”</p

The Treasury Department said in arnstatement that it was reviewing the lawsuits carefully, “But it isrnimportant to remember that U.S. taxpayers provided over $187 billionrnin exceptional support to these two entities to maintain theirrnsolvency, protect the broader economy and support continued access tornmortgage credit for millions of American families.”</p

Reuters also notes that, regardless of what the long termrnrelationship may have been between Fairholme Capital Management andrneither of the GSEs, the company announced last month that it hadrnacquired a combined $2.4 billion stake in the preferred shares ofrnFreddie and Fannie. Other hedge funds and investment firms have alsornbought shares recently in a gamble that the GSEs may be able tornregain their autonomy.

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