October 2, 2014 / 10:17 PM / 5 years ago

Perry Capital appeals dismissal of case over Fannie, Freddie profits

A stands outside Fannie Mae headquarters in Washington February 21, 2014. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) - Hedge fund Perry Capital on Thursday appealed a U.S. federal court’s decision to dismiss its suit challenging the government’s policy of confiscating the profits of mortgage finance firms Fannie Mae and Freddie Mac.

Judge Royce Lamberth of the U.S. District Court for the District of Columbia on Tuesday threw out lawsuits brought by Perry Capital and other investors who argued the government’s decision to sweep the profits of the companies into the U.S. Treasury was illegal.

The judge said the government had the authority under a 2008 law that laid the ground for its seizure of the two companies.

“The district court’s decision overlooks important points of law and improperly resolved key questions of fact based on the government’s cherry-picked record,” said Theodore Olson, an attorney with Gibson, Dunn & Crutcher LLP, who filed the appeal on behalf of Perry Capital.

The government seized Fannie Mae and Freddie Mac at the height of the financial crisis as they teetered on the brink of insolvency. It took a majority stake in each.

The Treasury ended up pumping $187.5 billion into the companies. They have since returned to profitability and have returned $218.7 billion to taxpayers in the form of dividends.

Initially, the companies were required to pay a 10 percent dividend on the government’s share, but later the Treasury and their regulator altered the terms to force them to hand over nearly all their profits.

The dismissal of the lawsuit dealt a blow to investors hoping to benefit now that Fannie Mae and Freddie Mac, the two largest sources of U.S. housing finance, are profitable. However, other lawsuits challenging the bailout terms are still pending.

In heavy trading on Wednesday, the common shares of both companies lost more than a third of their value. On Thursday, each fell more than 10 percent. The preferred shares held by private investors have fallen even more.

Reporting by Timothy Ahmann and Svea Herbst-Bayliss, editing by G Crosse and David Gregorio

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