DC Circuit Oral Argument Recap — Fannie/Freddie Net Worth Sweep Appeal (April 21, 2026)

If you're new here: I'm Glen Bradford. I'm long Fannie Mae and Freddie Mac preferred shares and have written the full Fanniegate thesis for years. This post assumes you've read the preview from last week or know the case.

If you're back: the recording dropped this afternoon. I listened. Here's the recap.

Recording: https://media.cadc.uscourts.gov/recordings/docs/2026/04/25-5113.mp3

Transcript via Otter.ai. Quotes below are from that transcript — some speaker attribution and punctuation is cleaned up but the substance is the court's.

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Who Argued

• John Elwood for FHFA, Fannie Mae, and Freddie Mac (Appellants / Cross-Appellees) — 20 minutes split across opening and rebuttal
• Hamish Hume for the Class Appellees — defending the jury verdict
• Brian Barnes for the Berkley Cross-Appellants — pushing restitution and reliance damages

Panel: Judges Walker, Childs, and Ginsburg (Senior Judge Douglas Ginsburg). Walker did most of the heavy pressing. Childs focused on Perry II, damages measurement, and equitable relief under 4617(f). Ginsburg leaned in on capital-markets analogies.

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Elwood's Opening — Collins Did the Work

Elwood opened exactly where FHFA's brief opens: Collins v. Yellen supposedly settled this. His framing:

"The Supreme Court unanimously held in Collins v. Yellen that decision to be within FHFA authority under the Recovery Act's best interest provision, because the agency reasonably determined that the new variable dividend was in the public's best interest, even if it was against the interests of the enterprises and their private shareholders."

His core move: if the Supreme Court said FHFA acted reasonably, a jury verdict saying it acted unreasonably can't stand. The statutory provision is incorporated into the contract, so shareholders had no reasonable expectation they'd be protected from exactly this.

Walker hit back immediately:

"That was under different provisions, correct? The first was under the APA and this is under a contract. Why can't that, by itself, be a reconciliation?"

That's the ballgame question, and Walker asked it in the first minute. Elwood's answer — that the statute is incorporated into the contract and means the same thing in both places — is the whole FHFA appeal in one sentence. If the panel doesn't buy it, the verdict stands.

Walker kept pressing: the Net Worth Sweep">Net Worth Sweep was "unprecedented." Prior decisions in this Circuit and the Third Circuit read Collins as leaving a gap for an implied-covenant claim. Is Elwood saying Collins overruled Perry II?

Elwood's answer was that Collins didn't overrule anything, it just "filled in detail." That's a hard sell when his whole argument requires the detail to be dispositive.

The Moment Elwood Conceded the Structure of the Claim

Childs asked whether FHFA is obligated to consider shareholders' reasonable expectations. Elwood:

"It's not that it's impractical, it's that they don't have to, that they can act in the interest of the agency and in the public."

Childs followed up: "How does that in any way restrain the conservator?"

That's the judicial version of "so there's no limit?" — and Elwood's answer was essentially that the statute specifies whose interests get protected, which is itself the restraint. If the panel doesn't think that's a real restraint, there's a lot of room for the implied covenant to do work.

The Class Certification / Standing Trap

Elwood spent a big chunk of his time on the argument that "shows in action" (chose in action) don't travel with shares automatically — meaning people who bought after the Third Amendment and knew about it shouldn't be in the class and shouldn't recover.

He pointed to the Royal Park case and the Pacific Life case for the "majority rule." Walker pushed:

"I looked for and could not find any statement of the majority rule."

And when Elwood claimed Delaware's Erdon was limited to dilution claims, Walker was clearly skeptical.

Childs asked the practical question: "Based on FHFA's position, do we have to do anything with Perry II?"

Elwood: "No."

That's either confidence or a tell. Perry II is this Circuit's own decision from the last round of this case. Claiming Collins made it irrelevant is aggressive.

The Rebound / Damages Point — and Walker's Kill Shot

Elwood argued the plaintiffs' damages expert failed to account for (1) the post-sweep price rebound and (2) the portion of the price drop attributable to the portfolio-reduction aspect of the Third Amendment, which plaintiffs didn't challenge.

Walker's counter was devastating and I want to quote it in full:

"The rebound argument that you make seems plausible. I guess I don't understand. Seems like the kind of testimony that an expert witness on your side would have offered. But you didn't. You didn't provide an expert witness to the jury."

Elwood: "I don't think we provided a damages expert."

Walker then walked him through it: in a normal case, the plaintiffs have an expert saying "this drop is because of the wrongdoing," and the defendants have an expert saying "no it isn't." FHFA didn't put up that expert. They didn't even raise a Daubert challenge to the plaintiffs' expert. And now they want the Circuit to throw out the verdict because the plaintiffs' expert didn't rebut arguments FHFA never made at trial.

Elwood: "I can't say whether or not we had a Daubert challenge."

That's not a great moment for an appellant asking the court to overturn an $812 million verdict.

Walker also flagged that FHFA had stipulated not to argue price-recovery mitigation to the jury — "Defendants will not ask Dr. Mason any questions about the price recovery, and defendants will not otherwise argue to the jury that the share price increased increases after the third amendment mitigated damages" (JA 4497). Elwood's response: the stipulation was "just to the jury." Walker: "Just to the jury" — read in context, that line landed as skepticism, not agreement.

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Hume for the Class — Hammering the Record

Hume walked the panel through the trial record with a force that FHFA's abstract legal arguments couldn't match. The core factual case:

• No analysis. Not a single memo or email analyzing whether the Net Worth Sweep was necessary. Acting Director DeMarco and his "sidekick" Mario Ugoletti (who was simultaneously working for Treasury) decided it. They consulted no one.
• The record contradicts FHFA's cover story. In June 2012, DeMarco told the Treasury Secretary: we don't need the sweep, we'll be making profits above the 10% dividend well into the future (JA 2575). Treasury told Secretary Geithner the same thing for his Congressional testimony (JA 2586).
• The real motive. In late July 2012, Treasury's Timothy Bowler got the Q2 numbers showing profits well above the 10% dividend. His reaction (JA 2906): "really makes sense to push the net worth sweep." Not because profits were too low — because profits were about to get too high and let the companies start rebuilding capital.
• Treasury said it openly. JA 2954 — Treasury's own announcement of the deal states the goal is to "ensure these enterprises will not be allowed to rebuild capital."
• FHFA's own chief accountant (JA 2933) acknowledged the sweep was "designed to demonstrate wind down" — not to solve a circular-dividend problem.

And then the punchline that reframes the entire case:

"In 2013, the first year it took effect... the dividends paid to Treasury were $130 billion of cash. That's $111 billion more than it would have been under the 10% dividend. There is not a single email or evidence that anyone at FHFA expressed the slightest concern or surprise about this. None."

Hume's point: if you were genuinely worried about circular dividends, you'd be surprised by $111 billion in excess dividends. Nobody was surprised because nobody believed the circular-dividend story.

The Standing Exchange — Walker vs. Hume

Walker kept probing the "what about people who bought after the Third Amendment" standing question:

"Let's say that I buy stock after the third amendment. At that point, the value of that stock reflects the effect of the third amendment. It just doesn't seem like the third amendment has cost me a penny."

Hume's answer was the best articulation of the plaintiff theory I've heard:

"The injury is to the stock. The drop in stock price is not itself the alleged injury. The alleged injury is that the net worth sweep effectively eliminated the dividend rights that came with the shares as they were originally issued. When someone buys a share in a company, they're purchasing a bundle of rights, and plaintiffs are arguing here that the net worth sweep removed one of the most valuable sticks from that bundle."

Walker tried the lemon analogy ("if you buy a lemon and you know it's a lemon, you're not injured"). Hume pushed back by pointing to Delaware's Erdon decision and the Delaware doctrine that claims inhering in the stock travel with the stock — regardless of price paid.

Ginsburg came in with the assist. He brought up the market for shares of bankrupt companies, Russian bonds, Cypriot bonds, Argentine bonds, and Revolutionary War scrip — markets for impaired securities where speculators buy at discounts and sometimes get paid back at par:

"Soldiers had sold off their script, thinking that it would never be worth much. The speculators who thought it might be..."

That analogy matters because it signals Ginsburg sees the plaintiffs' theory as consistent with how capital markets actually function — not some doctrinal outlier.

The Waiver Point

Hume landed one more blow on the class-certification issue. FHFA claims the plaintiffs waived key arguments by not developing class composition. Hume directed the court to ECF 135 in the class docket: FHFA didn't just stipulate to class certification, they asked plaintiffs to narrow the motion to B3 in exchange for not opposing it — and plaintiffs' motion was explicitly based on "claims traveling with the shares" (JA 4460, JA 4462).

In other words: FHFA negotiated a class certification premised on the exact theory they're now attacking on appeal. Walker was taking notes.

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Barnes for Berkley — The Cross-Appeal

Barnes's job was narrower: convince the panel that Judge Lamberth was wrong to block Berkley's restitution and reliance theories under 4617(f).

His key move: the restitution remedy only requires the defendants to pay money. The release of contractual obligations that follows is "the opposite of restraining or affecting the conservator's exercise of its statutory authority."

Walker was the toughest questioner here. He kept circling back to equity:

"If your objection is to the third amendment, as I understand it is, and the third amendment confiscated your property when it was worth seven, not 100 — I do think you're having difficulty with a district court sitting in equity."

That's Walker signaling he sees a windfall problem with restitution at par for shares that were trading at deep discounts. Barnes's counter was Restatement (Second) of Contracts § 373, comment D — that losing-contract windfalls are baked into restitution and the comparison should be to the $151 billion the government extracted, not the secondary-market price on the day.

Barnes also noted that many Berkley shares were purchased pre-Hera, going back to 2005-2007 — meaning Berkley itself doesn't have the "bought low post-sweep" windfall problem Walker kept testing.

On reliance damages, Barnes argued they raised the theory exactly when the federal rules required — within five days of the summary judgment that killed the expectancy theory, right before the first trial. Childs asked whether this was just a discretionary trial-management call by Judge Lamberth. Barnes: no, it was exactly what the initial disclosures contemplated (JA 194).

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Elwood's Rebuttal

Elwood came back to three points:

1. Pretext was already in front of both courts. Perry II on pages 611-612 addressed the pretext argument. Collins was "soaked in" pretext allegations. Neither court based its decision on that.
2. The "Kahn v. Warburg Pincus" point goes unrebutted. Hume attacked Blaustein but not Kahn. Elwood argued Kahn is clear: when a contract says a party "can act in its own interests alone," that eliminates the implied covenant.
3. Class certification wasn't waived. FHFA reserved the right to argue individual class members weren't injured. When the claim narrowed to "lost value at the time of the Net Worth Sweep," FHFA moved to decertify. Judge Lamberth denied it with "an air of impatience" — not a waiver ruling.

Then, as an almost-throwaway at the end, Elwood acknowledged the market's signal:

"There's still billions of dollars of work there. This year is closed yesterday — or $8. That's a 2,200% increase from before the third amendment. $8 for Fannie, $7 for Freddie. I mean, I wish that most of my investments would do that well."

The market is pricing in a plaintiff win. FHFA's own counsel said it out loud at the podium.

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What I Heard

I am not a lawyer. I'm a preferred shareholder who has followed this case for over a decade and listened carefully to 75 minutes of oral argument. Take this as one investor's read, not legal analysis.

Signals that pointed plaintiff:

• Walker pressed Elwood relentlessly on the APA/contract distinction, the no-expert-at-trial problem, the stipulation, and the "majority rule" he couldn't find
• Ginsburg's bankrupt-securities-market analogy lined up perfectly with the plaintiffs' travels-with-the-shares theory
• Elwood conceded FHFA put up no damages expert and he couldn't remember whether they raised a Daubert challenge
• Childs was professionally engaged on both sides — no obvious tilt, but she wasn't buying "we don't have to do anything with Perry II"
• Elwood's closing acknowledgment of the 2,200% common-stock move since the Third Amendment is, frankly, wild to say at the podium

Signals that pointed government:

• The standing / post-sweep purchaser line of questioning isn't frivolous — Walker genuinely kept circling it
• The equity / windfall concern on Berkley's restitution theory is real
• The "claim travels with the shares" question in Virginia is genuinely unsettled and could get certified to the Virginia Supreme Court, which would add a year

The likeliest outcomes, in my read:

1. Panel affirms the jury verdict on the implied covenant (most likely). Walker's questioning pattern strongly suggests he sees Collins as not dispositive and Perry II as still controlling.
2. Panel affirms and remands Berkley's cross-appeal for Judge Lamberth to consider reliance or restitution theories. This would be a substantial win.
3. Panel narrows the class on the post-sweep-purchaser standing theory. This would trim damages but preserve the verdict.
4. Panel reverses outright. I didn't hear this in the argument. I'm not ruling it out — oral argument isn't destiny — but it's the minority read on what I heard.

Opinion timing at the D.C. Circuit on a case this dense: realistically 3-9 months. I'd watch for a ruling sometime between July 2026 and January 2027. Anything faster than that is unusual; anything slower suggests the panel is split and taking its time.

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What I'm Doing

Nothing new. I've been long FNMA and FMCC preferred shares for years and I didn't add or trim around this hearing. Oral argument signals are real but a panel affirmance still has to get written, survive a potential en banc petition, and potentially go to the Supreme Court. If I were trading this for a living, I'd hedge around opinion-drop windows. I'm not trading this for a living. I'm waiting for the truth to come out, which is what I've been doing since 2013.

The full thesis is at glenbradford.com/fanniegate. If you found this post and you're new to the case, start there.

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If You Want to Go Deeper

• Full Fanniegate thesis — the whole story
• Pre-argument preview post from April 14
• Fannie Mae preferred shares explained — what you're actually buying
• FNMAS preferred dividend calculator — model the scenarios
• FNMA stock profile — Fannie Mae common
• FMCC stock profile — Freddie Mac common
• Investors Unite — Tim Pagliara's shareholder advocacy org, fighting this longer than anyone
• DC Circuit oral argument recording — 75 minutes, worth your time

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I hold long positions in Fannie Mae and Freddie Mac preferred shares. I have for years. This post is my personal opinion and is not financial advice. Quotes from oral argument are transcribed via Otter.ai and may contain minor errors; the authoritative record is the D.C. Circuit's audio. I am not a lawyer and my read of the panel's questioning should not be confused with legal analysis. Do your own research. The full thesis is at glenbradford.com/fanniegate.