A federal judge yesterday granted Bruce Berkowitz’s Fairholme Funds Inc. a motion to conduct discovery in its lawsuit against the U.S. government that challenges changes that the Treasury Department made to its bailout of Fannie Mae and Freddie Mac, the Wall Street Journal reported today. The ruling marked an initial victory for shareholders in what figures to be a long-running battle with the U.S. government over its 2012 decision to require Fannie and Freddie to send all of their profits to the government as part of the mortgage companies’ 2008 bailouts. Judge Margaret M. Sweeney of the U.S. Court of Federal Claims said she would hear the government’s motion to dismiss the lawsuit only after lawyers representing Fairholme had the opportunity to seek evidence that could undermine arguments the government has made in seeking to dismiss the case. A growing class of shareholders has sued the Treasury to challenge the changes to Fannie and Freddie’s bailout terms. They say that the new terms amount to an unconstitutional expropriation of assets and illegal self-dealing between Treasury and the firms’ regulator, the Federal Housing Finance Agency, which is charged with running the companies during their federal conservatorship.
