Two law firms have joined to file a class action lawsuit against the United States government, alleging the government violated the Fifth Amendment when it took Fannie Mae and Freddie Mac into conservatorship in 2008.
Spector Roseman Kodroff & Willis, P.C., based in Philadelphia, and Hagens Berman Sobol Shapiro, based in Seattle, filed the class action suit on behalf of shareholders this week.
""We are not disputing that the government's actions may have been in the best interests of the national economy,"" said Steve W. Berman, managing partner and co-founder of Hagens Berman Sobol Shapiro.
""However, it was obligated to provide just compensation under the Fifth Amendment for shareholders who suffered significant financial losses,"" Berman said.
The firms allege the government violated the Due Process and Takings Clauses of the Fifth Amendment when it took Fannie and Freddie into conservatorship and altered their business models to make them less profitable without compensating shareholders for their losses.
""While other major financial institutions were attempting to minimize their losses during a difficult economy, the government essentially forced Fannie Mae and Freddie Mac to do the exact opposite, expanding their exposure to some of the riskiest assets,"" said Robert M. Roseman, managing partner of Spector Roseman Kodroff & Willis, P.C.
According to the lawsuit, the government forced Fannie and Freddie to purchase subprime mortgages and other risky assets, which caused significant losses to the companies and their shareholders.
Additionally, the government was able to acquire 80 percent ownership of the formerly private companies at an exercise price of $0.00001 per share, leaving shares in both companies ""nearly worthless,"" according to the law firms.
""The U.S. government paid no heed to the rights and interests of shareholders when it effectively nationalized these two corporations,"" Roseman said.
The lawsuit, filed in the U.S. Court of Federal Claims, seeks damages for shareholders who held shares in Fannie Mae and Freddie Mac before September 5, 2008, when the companies fell into government conservatorship.