Casting a ray of sunlight on a case that has been shrouded in secrecy, a federal appeals court ruled on Monday that the government must produce a raft of documents to plaintiffs suing over its decision to seize all the profits of Fannie Mae and Freddie Mac, the mortgage finance giants that were put into conservatorship in September 2008, at the depths of the financial crisis.
The case against the government was brought in 2013 by Fairholme Funds, a mutual fund that owns shares of Fannie Mae and Freddie Mac. Its lawyers contend that the government’s surprise decision to divert the companies’ profits to the United States Treasury in August 2012, just as the companies were turning around, was an illegal seizure of private property.
The government has argued that the profit sweep was necessary to protect taxpayers against further losses; taxpayers advanced $187 billion to the companies after they were put into conservatorship. But documents unsealed last year in the case cast doubt on this argument, showing that the timing of the profit sweep coincided with a rebound in the companies’ operations and occurred just before they began generating profits again.