The volatile shares of Fannie Mae and Freddie Mac may face another legal shock, the Wall Street Journal said.
In September, a federal court dismissed lawsuits brought by Fairholme Funds and Perry Capital over the government taking the profits of the two mortgage-finance giants. Following that, Pershing Square Capital Management filed a voluntary notice of dismissal for its own lawsuit before the same court, the report said.
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Oddly, lawyers for the government have asked the court to reject this. It isn’t that they want Pershing Square’s lawsuit to proceed. Rather, they argue that since the issues raised in that one are so similar to those in the other two suits, the judge should rule that his dismissal of those also dismissed Pershing Square’s, said the Journal.
If the judge agrees, shares of Fannie and Freddie could plunge again. And given that the case is before the same judge that dismissed the other suits, that is a real possibility.
Pershing Square’s involvement could magnify the reaction. Recently, the hedge fund’s outspoken chief, Bill Ackman, has become the most visible advocate for Fannie and Freddie shareholders. Shares rose 9.9% after he revealed last Wednesday he had recently added to his bets on the firms, according to the report.
The risk centers on timing. Plaintiffs in federal court usually must file an appeal within 60 days of a final decision. So if Pershing Square’s case turns out to have been legally dismissed with the others on Sept. 30, the window to file an appeal has closed already. That would leave Pershing Square relying on Fairholme’s and Perry’s appeals and unable to make its own arguments to the court, the Journal said.
Pershing Square has also filed suit in the U.S. Federal Court of Claims. The government has asked that court to put the cases on hold pending the appeal of the D.C. district court’s decision. Fairholme wants to push forward.
It isn’t possible to predict the timing of the courts. Many investors were surprised by the September ruling because there had been no prior indications that the judge was close to making one; most attention was focused on the Court of Claims case. The same situation may be developing now, with attention focused on the appeal and cases in other courts – and leaving the stocks vulnerable to another surprise decision, the report said.
