FHFA VIOLATES LAW FROM DAY ONE OF CONSERVATORSHIP

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• Washington Federal v. United States, No. 13-385C
• WAZEE STREET OPPORTUNITIES v. United States, No. 18-1124C

Before Chief Judge Margaret M. Sweeney.

In the United States Court of Federal Claims

- BRIEF OF AMICUS CURIAE -

The shareholders are witnessing how the plaintiffs (mainly Junior Preferred Stock -JPS- holders) and the Government, along with the FHFA-Conservator collude with judges to favor their economic interest, at the expense of the shareholders (holders of common stocks)

A shareholder of a company is related to the ownership interest, that is, the ability to vote directly on the decisions of the management in the Annual Shareholders' Meetings and the appointment of the members of the Board Of Directors, who are tasked with the supervision of the management. A common stock, unlike the debt instruments Obligation, Bond, Note, MBS, etc, reflects the value of the enterprises because it has an economic claim over the entire quarterly profits after the distribution of the fixed dividend to the Preferred Stocks (Line item in the Income Statement: Profit/Loss Attributable To The Common Shareholders). Also, all the Equity ex-Preferred Stock value belongs to them (Retained Earnings account, Reserve for Guarantee Losses, etc)

The holders of JPS aren't FnF shareholders, but holders of "obligations with regard to Capital" (the Treasury's own words in the SPSPA) or non-convertible Capital Notes, recorded as Equity due to their Liquidation Right set forth in the specifications of the security outlined in their contract (Prospectus) with FnF, which makes them have "other ownership interest" in FnF (as outlined in the definition of Capital Distributions in the 1992 FHEFSSA. 12 U.S. Code §4502 (5)), that is, the ownership once FnF's status is Liquidation or Dissolution. A Conservatorship hasn't changed their status as private shareholder-owned corporations, operating business as usual. A Conservatorship has more to do with naming a Conservator to fix their operations and a Capital Restoration Plan.

This Court is allowing the parties to rig the Judicial proceedings when the honorable judge Margaret Sweeney stated in her Opinion of December 6th, 2019, in Fairholme case (acting as a de facto leading plaintiff for the Related Actions), No. 13-465C:

The Court generally assumes that the allegations in the complaint are true.

It turns out that their allegations aren't true and the Court isn't exempt from liability with that sentence. The parties collude in making tortuous interpretations of the law and coverup of key provisions, with the objective to get what they wouldn't get under the law, the standard business judgements and the specifications of the security they hold (JPS and SPS). In other words, they have an agreement to share the booty, at the expense of the shareholders. Notice that the lower the expected refund from the U.S. Treasury to the enterprises, the more Capital needs and follow-on stock offerings to raise Capital, so that the hedge-funds can purchase more common stocks at the current rigged prices (now it's "restricted") in the OTC Market, a Stock Exchange more easy to manipulate, as many market participants are barred from investing. The same occurs with the warrant: the Govt would eventually sell its common stocks at attractive prices to the hedge-funds. This is why there are many calls for the Goverment to exercise its warrant. For instance, the hedge-fund manager Tim Pagliara, who set up a fake association of shareholders called Investors Unite, to trick the shareholders into accepting his plans that harm the shareholders' economic interest in FnF (warrant exercised, Government Explicit Guarantee on the Mortgage-Backed Securities, swap JPS for common stocks, Utility Model, Credit Risk Transfers or stating that the Equity Holders' rights were removed, omitting that they were trasferred to the Conservator momentarily under HERA's succession provision, U.S. Code §4617(b)(2)(A), and that the Conservator has a fiduciary duty with the Equity holders and the enterprises, so it's supossed that we are protected by the Conservator, in an ideal world)
It's the period of Judicial proceedings when the Court has the obligation to investigate whether the allegations are true. An easy task knowing that FnF are statutory corporations (everything is decided, controlled and required by Law). The Senior Preferred Stock Purchase Agreement (SPSPA) or simply PA, not only isn't a law, but in the covenant 5.3. "Conservatorship", the Conservator and the Treasury agreed to not uphold the FHEFSSA section 1367 (as amended by HERA) that contemplates the termination of the conservatorship through the Conservator's Power of recapitalization: "Put FnF in a sound and solvent condition", U.S. Code §4617(b)(2)(D), to weather future storms, because there's no other provision that would prompt the termination of the conservatorship established for Critically Undercapitalized enterprises.

HERA restricts the Capital Distributions when FnF are undercapitalized, 12 U.S. Code §4614(e) (something omitted in all the lawsuits), with the exception: "to reduce the financial obligations with respect to ownership interest", that is, the Senior Preferred Stocks -SPS-.
The definition of Capital Distribution is "any dividend with respect to any shares (common stock) of, or other ownership interest (JPS and SPS) in, an enterprise”. 12 U.S. Code §4502 (5).

When the SPS were expected to be reduced (redeemed) soon (I estimate it was in 2013 in the case of Freddie Mac and 2014 for Fannie Mae), the FHFA and the U.S. Treasury needed another exception that would allow the enterprises to continue to make Capital Distributions, otherwise the dividends would have had to come to a halt once the SPS were fully redeemed (repaid). That's why on July 2011 the FHFA approved a rule (12 CFR 1237.12) that included another exception: (1) to recapitalize FnF.

HERA allowed an unlimited dividend yield on the obligations temporarily authorized to purchase by the U.S. Treasury incorporated in their Charters, 12 U.S. Code §1719 (g)(1)(A), but, prior HERA, there was already in the Charter an Authorization Of Treasury To Purchase (Redeemable) Obligations, 12 U.S. Code §1719 (c), at a rate similar to Treasuries (limited to $2.25 billion set 40 years ago, so Congress just had to update it), subsection included as an exception to the Charter's provision "Fee Limitation", 12 U.S. Code §1719 (f), that bars the U.S. Govt from levying a fee or charge on or with regard to the purchase, sale, issuance, guarantee, pledge of any mortgage, asset, obligation or other security by the corporations. That is, the U.S. Govt can't profit from FnF's securities other that the small rate on obligations mentioned (c), because it isn't included (g) -unlimited yield- as an exception. This provision Fee Limitation is being currently violated with the TCCA fees and the fees allocated to two Housing Trust Funds managed by the Treasury and HUD for Affordable Housing matters.

First of all, we have to understand that FnF are Congressionally Chartered Private Corporations with a Public Mission (outlined in the Purposes section of the Charter. 12  U.S. Code §1716). There's no way a private corporation can be tasked with a Public Mission that makes them take on more credit risk, without some sort of backstop by the Government. This backstop is the aforementioned original Authorization Of Treasury To Purchase (Redeemable) Obligations.

The only way to make legal the Government's actions to some extent, is considering the 10% and NWS dividend as schemes of faster repayment of the SPS and recapitalization, according to the exceptions to the Restriction On Capital Distributions, because there's no fastest gear than a NWS dividend. This scheme is called The Secret Plan, that would also uphold the Conservator’s Power. The SPS could have been purchased under the subsection (c) and not (g), but The Secret Plan wouldn't have been possible (low dividend yield). With this Secret plan, there's no Government theft as all the plaintiffs claim to get a compensation and make up for their losses due to the dividend suspended.

• As a side note, it's worth mentioning why the NWS was approved in 2012. It replaced the 10% dividend because it was ill-conceived, as the dividend made the enterprises post a loss (Capital Deficit) that prompted a Treasury draw and a subsequent increase of the SPS which, in turn, made them pay a higher dividend amount the next quarter. Then, more losses, more draws, etc. A vicious circle. It was solved with the NWS dividend, as now they can't pay more dividends than their earnings reported.

Due to the "cumulative" feature of the SPS's dividend, the actual low-rate dividend will be payable once FnF are Adequately Capitalized, as now any dividend is restricted.

This Secret Plan can't be fully legal because it's a breach of the Conservator's fiduciary duty, under the traditional view of a Conservator and HERA's succession provision. That is, it should have been made public.

The Warrant was purchased under an authority by the U.S. Treasury set forth in HERA "to protect the taxpayer", U.S. Code §1719(g)(1)(B). A security that acts as a protection is called collateral on the only exposure of the Treasury in FnF, the obligations SPS. Therefore, once the SPS were fully repaid in 2013 and 2014, the warrant should have been canceled, otherwise it's the current situation where the Warrant is a Takings claim when it turns permanent, since, according to the S.E.C. Rule 13d-3(d)(1)(i) BENEFICIAL OWNERSHIP: "a security holder is deemed to beneficially own any underlying securities that it has the right to acquire within 60 days", that is, a warrant is deemed Beneficial Ownership regardless of being exercised. The Takings Claim is corroborated with the breach of the subsection 12 U.S. Code §1719(g)(1)(C)(v), that establishes the CONSIDERATIONS with regard to this temporary authority: "The need  to  maintain  the Corporations  status  as a private shareholder-owned company. " After almost 12 years with the U.S. Treasury holding a beneficial ownership of 79.9%, and knowing that the SPS were already repaid in 2013/2014 and thus, the warrant doesn't comply with the purpose "to protect the taxpayer" (from losses) it was authorized for, it's time to call it by its name, Takings of private property.

Besides the breach of the fiduciary duty of the FHFA-Conservator and the Takings claim by the current shareholders due to the Warrant, these are other felonies committed by the FHFA and the Treasury:

• Securities Fraud in the issuance of SPS: Any obligation is unique. You can't increase the debenture on an existing obligation but you have to issue new obligations, but the Treasury and the FHFA agreed to increase the Liquidation Preference of the SPS, leaving the number of stocks stuck at 1,000 since day one, when the Treasury received that amount "for free". Their motive is to evade HERA's TEMPORARY authority of Treasury to purchase obligations, with a deadline established on December 2009, U.S. Code §1719(g)(4), since with this trick, the Treasury isn't formally purchasing obligations all along. As expected, this trick simply is Securities Fraud, because tricks aren't allowed in the law. Also it's Securities Fraud because the Stated Value ($1 per SPS, $2,000 combined) and the Liquidation Preference (around $200 billion combined) must be similar. Finally, the real value of the Liquidation Preference of the SPS doesn't match the value currently reported in their Balance Sheets.

• Accounting Fraud: the SPS handed out for free to the Treasury, contemplated in the 5th amendment to the Purchase Agreement (PA), are reducing the Net Income, but it can't appear on the Income Statement as it isn't an expense for the shareholders, as occurred with the SPS handed out for free both with the initial $1 billion worth of SPS on day one of conservatorship, and the ones contemplated in the 4th amendment to the PA.

• Stock Price Manipulation due to the Warrant (FnF report earnings on a diluted basis), the Secret Plan and the lack of FHFA's Risk-Based Capital requirement mandated by HERA after it struck the previous formula, which is necessary because it marks the Adequately Capitalized threshold. An absence with the objective to conceal the actual Capital needs of the enterprises and estimation of time period to the moment where the Total Capital surpasses the Adequately Capitalized threshold, when FnF resume the dividend payments and, most importantly, the price of Preferred Stocks recoups the par-value.
• Embezzlement of funds with the Credit Risk Transfer operations. Under the guise of normal operations, the insurers FnF give revenues away that are necessary to build up Capital and cover the risk that the CRTs are supposed to cover.

STANDING

I'm a shareholder of Freddie Mac since August 2010. I file this Amicus Brief in these two cases where I have standing due to their Class Action feature (on behalf of the absent parties) and strong interest in the subject matter, with the objective to advise the court of relevant and additional arguments that the court might wish to consider.

-Washington Federal v. United States, No. 13-385C. The original claim challenges the 2008 Agreements (the Warrant, the 10% dividend and the initial $1 billion worth of SPS handed out for free) with the adjective of "usurious", the third amendment to PA and outlines a Takings claim in violation of the fifth amendment to the U.S. Constitution. Although it established a cut date on September 8th, 2008, the alleged felonies are ongoing. Specifically the warrant is currently a Takings claim for the existing shareholders and the usurious dividend, either a 10% dividend or a NWS dividend, now being paid in kind (SPS handed out for free) after the 5th amendment to the Purchase Agreement. The fact that the judge hasn't registered the case as a Class Action yet and, thus, the absence of an official Class Action Period set by the judge, doesn't prevent the affected shareholders from filing their respective briefs of Amici Curiae whenever they deem that their factual analysis will be useful in the Judicial proceedings.

-WAZEE STREET OPPORTUNITIES v. United States, No. 18-1124C. The plaintiffs filed a Class Action on time challenging the third amendment to the PA, which falls squarely in the time period when I became shareholder and now, a potential Class Action member once the judge registers this lawsuit as a Class Action.  In this case, the court is advised that Wazze Plaintiffs own JPS and that the shareholders love the Net Worth Sweep as part of the aforementioned plan of faster repayment of the taxpayer's assistance and, later on, recapitalization, according to law (The Secret Plan)

Finally, due to the technical matters in Finance that arise in this brief, it's recommendable for the Court to reach out to the Securities and Exchange Commission, with more expertise in Finance (term recapitalization, Conservator’s Power of Recapitalization, difference between a Preferred Stock and a Common Stock, the warrant deemed Beneficial Ownership, investigation of securities fraud violations, etc.), instead of reaching out to the Circuit Court of Appeals again (which have already expressed their opinion without much success), leaving the related cases in a loop.

RESOLUTION

• The excess of the SPS amount ($110 billion) must be reimbursed to the enterprises and the Treasury must set a low-rate yield on the SPS, payable once FnF are Adequately Capitalized. A rate that must be lowered due to the existence of the warrant, because that's what the collaterals do on any debenture.
• SPS canceled (redeemed in 2013/2014)
• Warrant canceled.
• Moral damages to the Equity holders, under a rule that considers the average gap to the fair value of each class of stock, had The Secret Plan and the Risk-Based Capital been made public.

Afterwards, automatically all the lawsuits with regard the Conservatorship ought to be dismissed because they are meritless, as the economic harm would have been redressed and what is left is that the dividend was impeccably suspended for all the Equity holders.

-There are other amounts due to the enterprises:

• MHA program: FnF participated in this Federal program under TARP. Even FnF are due the amount advanced to the mortgage servicers.
• TCCA fees: barred in the Charter's Fee Limitation provision.
• Corporate Tax on the settlements, a non-taxable income.
• Interests on the escrow account at the Treasury Department where the funds have been deposited every quarter.

Respectfully submitted:

Dated: April 14th, 2020

Carlos Vignote Sánchez

Freddie Mac Shareholder

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