Pershing Square sues U.S. over Fannie Mae, Freddie Mac

Thu Aug 14, 2014 8:15pm EDT
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By Jonathan Stempel and Svea Herbst-Bayliss

(Reuters) - Pershing Square Capital Management LP, the hedge fund firm run by William Ackman, has sued the U.S. government, claiming that its stripping of Fannie Mae's and Freddie Mac's profit illegally short changes investors in the mortgage companies' common stock.

In a complaint filed on Thursday with the U.S. Court of Federal Claims in Washington, D.C., Pershing is challenging the government's "brazen" practice since 2012 of funneling virtually all profit from Fannie FNMA.OB and Freddie FMCC.OB into the U.S. Treasury Department's coffers.

It said this will have by next month created a $130 billion "windfall" through the "confiscation of the entire net worth" of both companies, with an eye to winding them down.

"The net worth sweeps make plaintiffs - and all of the other common shareholders - 'shareholders' in name only," according to the complaint, which three retirees who own Fannie Mae stock have joined as plaintiffs.

Pershing accused the government of violating the Fifth Amendment of the U.S. Constitution by taking private property for public use without just compensation. It seeks damages and other remedies.

The Treasury Department declined to comment. The Federal Housing Finance Agency, which is Fannie's and Freddie's conservator, did not immediately respond to a similar request.

Pershing's lawsuit adds to public battles being waged by Ackman, including a bid with Valeant Pharmaceuticals International Inc (VRX.TO: Quote) for Botox maker Allergan Inc (AGN.N: Quote), and a campaign against nutrition company Herbalife Ltd (HLF.N: Quote), which he calls a pyramid scheme, a characterization the company denies.

Other investors, including hedge fund firm Perry Capital LLC and Bruce Berkowitz's Fairholme Capital Management LLC, have also sued the government over Fannie and Freddie, which were bailed out in September 2008 amid mounting mortgage losses.   Continued...

A woman toting an umbrella passes Fannie Mae headquarters in Washington February 21, 2014. REUTERS/Kevin Lamarque