Fannie, Freddie investors seek rehearing of U.S. case on profit seizure

The Fannie Mae headquarters is seen in Washington November 7, 2013. REUTERS/Gary Cameron

(Reuters) - A group of investors have filed for a rehearing of a case on whether the government improperly seized profits of Fannie Mae FNMA.PK and Freddie Mac FMCC.PK.

The investors are asking a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia to reconsider its earlier decision. The move indicates that hedge funds and other investors are not giving up in their fight to reclaim profits in the mortgage companies, which were seized by the government as part of their bailout following the subprime mortgage crisis.

Preferred shares of both companies rose on Friday while their common stock fell. Fannie Mae preferred FNMAS.PK gained about 1.6 percent to $6.86 a share while Freddie Mac preferred FMCKJ.PK was up 3.1 percent to $3.17 a share.

In February, a panel of the appeals court ruled 2-1 that a lower court had ruled correctly when it rejected investor claims the government exceeded its authority in eliminating dividend payments to Fannie and Freddie shareholders in 2012.

Instead, the Treasury Department required that the companies pay an amount equal to their quarterly net worth to the government, leading to a legal challenge from investors.

A group of investors, led by Perry Capital LLC and Fairholme Funds, are behind the legal charge against the Treasury’s actions.

In its decision, the court ruled that the government had the authority to make that move under the terms of legislation authorizing the seizure of the two struggling companies in 2008. The two have since returned to profitability, but the terms of the Treasury’s arrangement have not changed.

Major owners of the companies’ preferred stock include Bruce Berkowitz’s Fairholme Funds Inc, while William Ackman’s Pershing Square Capital Management has a large stake in their common shares.

Reporting by Pete Schroeder; Editing by Cynthia Osterman