GSE Investors Gain Victory in Court of Federal Claims

A U.S. Court of Federal Claims judge ruled on Wednesday that lawsuits brought about by Wall Street investors in Fannie Mae and Freddie Mac can continue, according to media reports.

Judge Margaret Sweeney denied the government's attempt to stay court proceedings in the case, gaining a victory for Fairholme Funds and its CEO, Bruce Berkowitz, who sued the government in 2013 over the sweeping of GSE profits into the U.S. Department of Treasury. The plaintiffs in the suit claim that sweeping of GSE profits equates to taking private property for public use without "just compensation," a practice forbidden by the Fifth Amendment of the U.S. Constitution.

After Wednesday's decision, Fairholme plans to continue gathering information for the case in order to bolster their argument that the Court of Federal Claims, not the U.S. District Court in Washington, D.C., has jurisdiction over the case.

"We are very pleased that the court has allowed discovery to continue," said David Thompson, attorney for Fairholme Funds. "We look forward to receiving all the relevant internal documents from the government and deposing the key officials responsible for the net worth sweep."

The case was on hold pending Fairholme's appeal of U.S. District Judge Royce Lamberth's decision in September to dismiss the GSE investor's suit against the government. At that time, the judge also dismissed a similar suit brought about by Perry Capital. Lamberth ruled that the government had been given the authority by Congress under the Housing and Economic Recovery Act to sweep GSE profits into Treasury.

Wednesday's decision represented yet another setback for the government in the ongoing saga of lawsuits regarding GSE profits. Last week, U.S. District Judge Royce Lamberth ruled denied Treasury's motion to reverse Pershing Square Capital Management's voluntary dismissal of one of its lawsuits against the government.