Legal wrangling over who should keep the hundreds of billions of dollars in profits generated by Fannie Mae and Freddie Mac is heating up, and investors increasingly are betting the government will end up the loser, the Wall Street Journal reported today. Since last summer, the Treasury Department has faced a host of shareholder lawsuits over changes it made in 2012 to the terms of the bailout agreements with the mortgage-finance giants in 2008, when the government seized the firms as they neared collapse. The plaintiffs say that the Treasury wasn't authorized to make the changes — which required Fannie and Freddie to send all of their profits to the Treasury — and that the move amounted to unlawful seizure of private property. The Treasury "has effectively nationalized the companies and ensured that they will never return to private ownership" using steps that are "plainly unlawful," said Theodore Olson of Gibson, Dunn & Crutcher LLP, at a conference last week. Mr. Olson, who served as solicitor general through 2004, is representing Perry Capital LLC, a hedge-fund firm that filed suit last July. The government has argued that the plaintiffs don't have standing to challenge its decisions because the rescue legislation barred shareholder claims and that the cases don't have merit.
