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43 » VISIT US ONLINE @ DSNEWS.COM experiences will help you in this case? at's a good question. In some ways the cases are very different, but one or two things are similar. In both the Barclays case and in this case, the side of the case that I was working on was emphasizing the plain text and plain meaning of the contracts. In Barclays, we relied on the plain text of the contract and the other side tried to say, well, the contract wasn't fair—or the terms of the contract were not adequately disclosed to everyone or were not officially approved by the bankruptcy court. At a big picture level, that's what was being argued in that case. We ultimately showed that the court did approve it even though it knew there were some moving parts and uncertainty, and therefore the plain text of the contract had to be upheld. e same is true in this case where the defendants just want to overlook or ignore the plain meaning of the contracts governing the investments made by private shareholders into Fannie Mae and Freddie Mac, as well as the plain meaning of the original contract entered into by the Treasury when the enterprises went into conservatorship. No one questions that the government, the U.S. Treasury, is entitled to receive the first set of profits that come out of Fannie and Freddie, because it agreed to provide emergency funding in 2008. Also, no one disputes that the Treasury has made an enormous profit in accordance with that original contract and that it would continue to make a big profit in accordance with that original contract. What we're saying is the government can't change the deal four years later so that it takes everything and nullifies the rights of the private shareholders. So I think one area of overlap—and they are different cases, so I don't mean to suggest it's a perfect analogy—is that in both the Barclays/Lehman case and in this case, I am saying, you cannot retrade the deal after the fact. You have to stick with the deal you originally made and you don't get to nullify people's rights by retrading it later. Last week, there were some documents unsealed related to Fairholme's lawsuit against the government over the GSE profit sweep (Net Worth Sweep). Those documents seem to suggest that certain government officials knew that Fannie Mae and Freddie Mac were on the verge of mak- ing big profits in 2012. Do you think that will have any bearing on how courts handle litigation relating to the Net Worth Sweep? I think it was helpful to us. I think the more that is unsealed, the better for our side, and I think those specific documents show that Fannie and Freddie and the government and Treasury all knew that they were likely going to become more profitable and that the Net Worth Sweep was going to be very good for Treasury and very bad for private shareholders. It turned out that Fannie and Freddie were even more profitable than expected in August 2012, but they knew they were going to be profitable, and they knew they were not in a "death spiral." at's what those documents proved, and they are very helpful to us and we're very grateful for the ability to present them to the court and to the public. So you used those documents in your arguments last week? Yes, absolutely. Particularly in my rebuttal, because initially one of the judges seemed a little dismissive of the documents and said, well, the deposition just shows that one person, the CFO of Fannie, thought that they were about to make an extra $50 billion in profits. I said first of all, that's a big deal—she's an important person and she thought that. Second of all, it wasn't the only thing. ere were other documents showing projections of profits from Fannie and Freddie for many years and showing that they were on schedule to repay more in dividends than the government had contributed and invested. e government knew it was going to be making money based on Fannie and Freddie profits; it just decided it wanted to make even more money. So it retraded the deal so that it would take everything instead of its original 10 percent dividend plus 80 percent of the common. Don't forget, the government would have gotten, first and foremost, a 10 percent dividend on the total amount of its investment. en, if it wanted more, if there were more profits, which it knew there would be, it had the ability to acquire 80 percent of the common stock for a very small amount, like $10,000 or $15,000, and then it would get the common stock dividends as well. What that means is, if the government wanted to receive dividends under the original deal of more than the 10 percent, it had to exercise the warrants for the common and before a common stock dividend could be paid, there had to be a dividend on the junior preferred sharehold- ers, the private preferred shareholders, because they had priority over the common. at was recognized in all the contracts—and when the dividend was paid on the 80 percent of the common, the 20 percent of the common held by private shareholders would get a prorata divi- dend. at was the original deal. What we're saying is the government isn't allowed to change that original deal so that it takes 100 percent of all dividends equal to the entire net worth of the companies no matter what—which is what the Net Worth Sweep does. Since the Net Worth Sweep was put into place, Fannie and Freddie have paid approximately $130 billion to the U.S. Treasury over and above what would have been paid under the original deal—i.e., through the payment of the 10 percent senior preferred stock dividend. So it paid the 10 percent senior preferred stock dividend and then paid an additional $130 billion in the three years since the Net Worth Sweep. Had they complied with the terms of the original deal with Treasury, and had they wanted more than their 10 percent dividend, then the only way for any of that $130 billion to have been paid out to the government was by the government exercising its right to acquire 80 percent of the common. Basically, for $10,000 or $15,000, the government could have bought 80 percent of the common—which was then worth at least $100 billion, because the $130 billion, you first have to pay a preferred dividend to the junior preferred shareholders, which would have been somewhere between $7 and $8 billion, or at the most, $9 billion. e remaining $122 billion would have been split 80 percent/20 percent between the government and common shareholders who are the private common shareholders. e government still would have gotten roughly $100 billion out of the $130 billion, but they wanted everything, so they put in effect the Net Worth Sweep. at's what we're complaining about, in a nutshell. What is the next step in this case? is is one of two cases. ere is this case and then there is the Court of Federal Claims case. ere are three next steps: One, the Court of Appeals has asked for a supplemental brief this Friday addressing a specific statute. So the parties are all going to submit that—very short, just 10 pages each. en we are waiting for the Court of Appeals to make a decision in that case. In the Court of Federal Claims, we are finishing up some jurisdictional discovery, and then we have one issue for the court to decide and then we are going to amend our complaints and proceed to pursue our takings claim and pos- sibly other related claims in the Court of Federal Claims.

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