The Standing Trap: How the Government Is Trying to Kill the Fannie/Freddie Verdict Without Touching the Merits — and the Delaware Case That Slams the Door

If you're new here: I'm Glen Bradford. I'm long Fannie Mae and Freddie Mac junior preferred shares — most of my net worth, not a side bet — and I've written the full Fanniegate thesis for years. This is analysis and opinion, not advice. I hold what I write about, and I am not a lawyer.

If you're back: yesterday I broke down Trump saying he "had the right to sell" — the administrative track. This post is the other track: the courtroom. Two letters just hit the D.C. Circuit docket in Fairholme Funds Inc. v. FHFA, No. 25-5113 — the appeal of the jury verdict shareholders won in front of Judge Lamberth. They're short. They matter more than their length suggests.

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First, the part nobody wants to say out loud

Shareholders won the trial. A jury found that the Net Worth Sweep — the 2012 Third Amendment that swept all of Fannie's and Freddie's profits to Treasury — breached the implied covenant of good faith and fair dealing inherent in the corporate charter. Lamberth let the verdict stand.

So how does the government win on appeal without convincing three judges the jury got the facts wrong? It changes the subject. Instead of relitigating whether there was a breach, it argues that the people who own the shares today have no standing to collect on it — because they bought after the Sweep, when the damage was already done and "priced in." Knock out standing and the verdict evaporates for current holders without the court ever having to defend the Sweep on the merits.

That is the cleanest, most dangerous arrow in the government's quiver. And it's the one these two letters are fighting over.

The question the whole thing turns on: does the claim "travel with the shares"?

When you buy a share of stock, do you also buy the legal claims attached to it? Delaware law splits this in two:

• Claims that "inhere in the security" — that arise from the relationship among stockholder, stock, and company — travel with the share when you sell it. The buyer now owns the claim.
• "Personal" claims — where the property "happens to be shares" but the cause of action isn't carried by the share (think fraud in the purchase or sale) — do not travel. They stay with whoever was wronged.

If the implied-covenant claim inheres in the security, then current shareholders own it and have Article III standing — and the prior holders who sold lost standing the moment they sold. If it's personal, the post-Sweep buyers are holding an empty bag and the verdict could fall on standing grounds.

That's the whole ballgame. Watch both sides swing.

Hume's May 27 letter: Yosaki closes the door

Hamish Hume (Boies Schiller, for the Class Plaintiffs) filed a Rule 28(j) letter — the procedural device for flagging new authority after briefing has closed — citing Yosaki Trust v. Weber, 351 A.3d 974 (Del. 2025), decided after briefing ended in this case.

His argument, in plain English:

"Claims that arise from the relationship among stockholder, stock and the company inhere in the security itself," including "a claim alleging a corporate charter violation."

The jury found the Sweep breached the implied covenant inherent in the corporate charter (JA2330-31; JA2336). Under Yosaki, that's exactly the kind of claim that inheres in the shares and travels with them on sale. So current Plaintiffs hold the property right to the claim and have standing; the pre-Sweep sellers "lost standing" when they sold. Otherwise — Hume's kicker — the doctrine that inherent claims travel with shares "would be meaningless."

He also defuses the government's favorite talking point: the August 2012 price drop wasn't the injury — it was just a way to estimate damages because other methods were precluded. The post-Sweep price already "implicitly reflect[s] the value of the pending and any prospective lawsuits" (citing In re Activision Blizzard, 124 A.3d 1025 (Del. Ch. 2015)). In other words: when you bought post-Sweep shares, you paid for — and therefore own — the lawsuit too.

Read the Hume letter (PDF, 3 pages) →

Elwood's May 29 reply: "different kind of claim, and besides, it's unpublished"

John Elwood (Arnold & Porter, for FHFA; joined by O'Melveny for Fannie and King & Spalding) fired back two days later. His counter has three moves, and you should understand all three because they're not stupid:

1. "Yosaki was a dilution case; this isn't." Yosaki and the case it's built on, Urdan v. WR Capital Partners, both involved share-dilution claims. Dilution inheres in the security, the government concedes, because it impairs your relative ownership and voting power on a continuing basis. The Sweep claim, Elwood argues, is "personal" — it allegedly cut the value of the shares at a single point in time, and that property just "happen[ed] to be shares." Point-in-time harm that was immediately priced in = no ongoing injury for later buyers.
2. Dividend claims don't travel. The right to a declared dividend is "a separate property right," not "a right in the security" (citing a 2025 Second Circuit case, Sabby v. Jupiter Wellness). A claim to recover forgone-dividend value, he says, should be treated the same way.
3. "Yosaki actually helps us." Because it frames the travel-with-the-shares issue as one of standing ("The Trusts lost standing after ... selling the PubCo shares"), and — he stresses — it's an unpublished order that merely "retreads" arguments already in the briefs.

Read the Elwood letter (PDF, 2 pages) →

Where I land — bullish, but I'll show you the soft spots

I think Hume has the better of this, and here's the honest version of why.

Elwood's whole distinction rests on dilution (continuing) vs. point-in-time (personal). But the jury didn't find a one-off tort that happened to hit a stock price. It found a breach of the implied covenant inherent in the corporate charter — the literal "relationship among stockholder, stock and the company" language Yosaki uses to define what inheres. A charter-based covenant claim is about as far from "fraud in the purchase or sale of shares" (the textbook personal claim) as you can get. When the government has to recharacterize a charter-breach verdict as a personal tort to win, that tells you which way the doctrine actually cuts.

And the "priced-in, so no injury" move quietly proves Hume's point. If the Sweep's harm got baked into the post-Sweep price, then post-Sweep buyers paid for the impaired shares and the attached claim — which, per Activision Blizzard, is exactly what the market price reflects. You don't get to say "the injury was already priced in" and "the buyer didn't acquire the injury" in the same breath.

Now the soft spots, because I'd rather you hear them from me:

• Yosaki is an unpublished order. Elwood hammers this for a reason — its persuasive weight is real but limited, and the panel can wave it off as not changing the analysis.
• Oral argument already happened (April 21, before Judges Walker, Childs, and Ginsburg). These 28(j) letters are last-word jockeying over a case that's already under submission. Nobody's mind is guaranteed to move.
• Standing is a genuine risk, not a settled win. I'm telling you the government is pressing it hard precisely because it's their most viable path. If they land it, current holders have a problem the merits can't fix.

So I'm not declaring victory. I'm telling you the plaintiffs just plugged the exact hole the government is aiming at, with fresh law that's directly on point, and the government's response is a distinction that gets weaker the longer you stare at it.

Why this matters even though the real money is administrative

Here's the part that ties the two tracks together. Yesterday's post argued the administrative path — Treasury and FHFA ending the conservatorship — doesn't need a court to do anything. That's still true. Recap and release can happen while this appeal is pending, and the President is out there valuing the companies near $1 trillion and describing the sale as his call.

So why care about a standing fight? Because the verdict is leverage and upside, not the load-bearing wall. A live, affirmed shareholder judgment changes the math on any settlement, any PSPA amendment, any "clean up the litigation before the offering" calculus — and a settlement before an IPO is increasingly the pragmatic path. The administrative track frees the companies; the litigation track determines how much the people who held through the dark years get paid for what was taken. I'm positioned for both, in the junior preferred, because they sit on par anchors that win in the capital structure rebuild either way.

The courtroom and the White House are pulling on the same rope, in the same direction, at the same time. That's not a coincidence I'm betting against.

I hold what I write about. None of this is legal or investment advice. I am not a lawyer. Read the letters yourself — they're right above — and do your own work.

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Tracking all of it in one place: the GSE catalyst tracker and the full Fanniegate thesis. Hat tip, as always, to Peter Chapman, whose docket emails are the connective tissue of this whole saga.