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52 INVESTORS SUE FEDERAL GOVERNMENT OVER GSE PROFITS Investors led by New York-based hedge fund giant Pershing Square Capital Management sued the United States government, alleging that common stockholders in Fannie Mae and Freddie Mac have been shortchanged since the government began sweeping profits from the GSEs into the U.S. Department of Treasury starting in 2012. ree individual common shareholders along with Pershing Square alleged in the complaint that the diverting of GSE profits into Treasury equates to taking private property for public use without "just compensation," a practice forbidden by the Fifth Amendment of the U.S. Constitution. Pershing Square claims in the lawsuit that the diversion of GSE profits created a "windfall" for the government while shortchanging GSE shareholders. With more than 63 million shares in Freddie Mac totaling approximately $246 million and more than 115 million shares worth about $448 million in Fannie Mae, Pershing Square is by far the largest non-governmental owner of GSE common stock. Pershing Square's share in both GSEs computes to about 10 percent. e three individual investors who combined with Pershing Square in the lawsuit are Josephine and Stephen Retie, a married couple who purchased common stock in Fannie Mae approximately 15 years ago, and retired nurse Louise Rafter, who has held common stock in Fannie Mae for more than 25 years. e lawsuit, which was filed with the U.S. Federal Court of Claims in Washington, D.C., is one of several similar suits filed in the last 14 months. In July 2013, hedge fund Perry Capital sued the federal government over Treasury's sweeping of GSE profits. e next day, Pershing Square filed a second lawsuit against the federal government, this time in the U.S. District Court. In the second suit, Pershing Square suggested that the GSE dividends being diverted into Treasury, which amount to billions of dollars, should be divided among the common shareholders for the GSEs. e new complaint made by Pershing Square alleged that the company was told the GSE stockholders did not have fundamental shareholder rights. According to the complaint, the Federal Housing Finance Agency (FHFA), conservator for both GSEs following the government's bailout of Fannie Mae and Freddie Mac in 2008, refused to allow Pershing Square to inspect books and records despite written demands to the FHFA board of directors made by Pershing. William A. Hackman, CEO of Pershing Square Capital Management, declined to comment on the record when reached by phone. Spokespeople from the Treasury Department and the Federal Housing Finance Agency also declined comment. FED AND FDIC PROVIDE RESOLUTION PLAN DIRECTION Financial institutions received additional guidance from the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) regarding resolution plans, which the institutions will be filing in December for the second time. e U.S. Bankruptcy Code calls for each financial institution to provide an effective strategy for rapid and orderly resolution should the institution experience any type of financial calamity. e institutions were required to file their original resolution plans in December 2013. At that time, 117 U.S. bank holding companies as well as foreign-based firms, all with less than $100 billion in total nonbank assets, were required to submit resolution plans to the Federal Reserve Board and the FDIC. e two governmental entities reviewed the initial resolution plans and offered the direction to the financial institutions for their second resolution plans, according to the size and scope of each institution's operation in the U.S. For 31 institutions with complex U.S. operations, the agencies directed them to submit resolution plans that take into account obstacles to resolvability, as identified by the agencies. e obstacles were identified as global issues, funding, and liquidity. For 25 institutions with less complex operations in the U.S., the agencies are allowing them to submit tailored resolution plans using the agencies' template. is tailored resolution plan template for 2014 was released by the Federal Reserve Board and the FDIC and is focused on how nonbanking and banking operations of the institution are connected. For 61 institutions with limited operations in the U.S., the agencies are allowing the focus of the resolution plan to be on material changes to the plans submitted in December. ese firms were also directed to concentrate on strengthening their initial plans' effectiveness.

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