A large hedge fund that invested in shares of the government-sponsored mortgage companies Fannie Mae and Freddie Mac has sued the U.S. Treasury Secretary, and the head of the Federal Housing Finance Agency, along with the agencies themselves, arguing that their attempts to wind down the companies violate a Congressional mandate.
In a suit filed Sunday evening with a U.S. District Court in Washington, D.C., Perry Capital asserts that a 2012 amendment to the Housing and Economic Recovery Act illegally changed the rules governing Fannie and Freddie as part of their move into federal conservatorship.
Perry, a New York based hedge fund that manages $8.5 billion, began purchasing preferred shares of the agencies in 2010 in hopes that they would eventually generate attractive returns. Other private investors, including John Paulson's hedge fund Paulson & Co. and the mutual fund Fairholme Capital Management, have done the same.
Since then the government, Perry believes, has undermined private investors with a series of measures intended to liquidate the government-backed agencies. The most recent example of these steps is a bipartisan bill cosponsored by Sens. Mark Warner and Bob Corker that would wind down Fannie and Freddie over the course of five years. But the liquidation process was set in motion, Perry argues, by a 2012 Treasury-FHFA measure that altered the original terms of investing in the agencies while they were in conservatorship.
The Perry case, which was filed electronically, is "ultimately about the rule of law and whether agencies...have to abide by the laws that Congress set out for them," said one of the lawyers from Gibson, Dunn & Crutcher that has been retained by the plaintiffs during a call with reporters.
Spokespeople for the Treasury and FHFA had no immediate comment.
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