#Fanniegate, Lamberth Jury Trial, Day 1

 Alright #Fanniegate Fans, let's start with a summary of Lamberth jury trial Day 1. 

Original Twitter Thread

First, apparently a juror didn't show up (or maybe 2?) and their are now 9 jurors seated (probably a jury of 6 with 3 alternates but not 100% clear). This delayed the start of opening arguments until after 11:30am. Some brief argument over a tsy document but it was included. 

Ps opening was extremely clear. Tsy got $150B from NWS than the 10% original deal (explained step by step with slides). JPS Ps paid in $33B and only received $5B back in dividends, and NWS cut of all possibility of future dividends (clear and simple slides), so $27B down... 

...and we're only asking for a small fraction of that. Lot's of time spend on explaining the $27B, and literally 1 minute explanation of the end of the share price pre-NWS of $2.9B and post-NWS of $1.3B for a decrease of $1.6B and "that's all we're asking for" 

So 30 minutes on "we're down $27B" and 1 minute on "we're only asking for $1.6B". Take from that what you will. I'll just mention that later in the day, Ps first witness spend their entire time (~45 minutes) walking through where the $27B comes from using documents in evidence. 

Ps say they will prove that FHFA made this decision with no analysis and no regard to impact on others, moreover that DeMarco and Ugoletti had suspect motives and have questionable character based on previous sworn testimony that will be brought into question by other evidence.

Ps pre-empt many of Ds arguments, explaining that NWS is still paid in-kind, the PCF would have been tiny if anything, Ps have no problem with 2008, this case is about 2012, and this case is about people in power and how they are allowed to exercise that power (fair dealing). 

Ps completely respected all of Lamberth's rulings. Ps laid the groundwork for explaining what good faith and fair dealing mean, and what reasonableness means in this case (which Ds will completely disregard). Ps end by repeating the $33B in and $5B out. Sincerely thanks jury. 

Ds defense completely disregarded Lamberth's clear ruling on summary judgement. It was also a "greatest hits" of all the explanations for the NWS that have emerged and evolved over the years. 

First, despite Ps saying they don't contest the 2008 deal, Ds spend at least half of their time re-litigating 2008. They claim that this should inform shareholders reasonable expectations, despite the fact that Lamberth ruled that expectations are defined by contract, not events 

Ds say Tsy made a big commitment (they falsely claim that Tsy immediately paid FnF $200B with PSPAs and FnF only paid dividends on the "amount used") and shareholders would have lost everything, so they aren't entitled to anything 

Ds also falsely claim that dividends were "eliminated" in 2008 (by taking a quote from Lockhart out of context) when in fact they were only suspended. Ds claim this means that shareholders shouldn't have reasonably expected any dividends in the future.

Ds correctly state that dividends to shareholders were always optional anyways (board must declare them), and then misleadingly suggest that this means it is reasonable to cut of the possibility of future dividends since dividends were never guaranteed in the first place 

Ds spend an enormous amount of time intimidating the juror with a ham fisted explanation of the secondary mortgage market, and then claim that the whole system was at risk in 2012 because the SPS liq. pref. cap was going to turn back on Dec. 31st 2012 

Ds claim that the market was terrified of the cap, and that the treasury commitment would run out, causing FnF and then the entire financial system to collapse, and that the NWS was the only solution that guaranteed the system would keep working. 

After confusing, intimidating the jury with these complexities, and then threatening them with economic collapse, Ds say that DeMarco made the hard call in the "hot seat" and hindsight is 20/20 but we shouldn't question hard working public servants 

Ds claim that HERA and the PSPAs become part of shareholder contracts because they are GSEs and regulated entities and so the corporate law that governs contracts encompasses the entire law that regulates them. So reasonableness must take into consideration HERA and the PSPAs 

Ds claim the NWS was reasonable to DeMarco because he was required to protect the public and stabilize the secondary mortgage market, and should have been reasonable to shareholders because they should have read HERA and seen that FHFA must act for the public good not their good.

Ds argument of course includes the circular draws death spiral claim and the erosion of the treasury commitment. Ds then pull out some other arguments, including that the Periodic Commitment Fee (PCF) would have been "very expensive" and could have encompassed the NWS 

Ds explain that they were just switching from a fixed dividend on the SPS to a "variable dividend" (as if variable dividends are computed as a percentage of income) 

Ds conclude it was reasonable for Ps to expect dividends eliminated because they already were eliminated, FHFA had to serve public good, Ps didn't have absolute right to dividends, DeMarco had to do it to save the system, and Ds could have taken everything with the PCF anyways. 

On damages Ds ask that jury find the Ds not liable (so zero). 

After opening arguments, Ps called Susan Hartman who began to go through the docs to show the $33B paid in and $5B paid out to shareholders. This will continue tomorrow morning, followed by class representatives and then some unspecified depositions. DeMarco is on Thursday. 

Ps were calm, clear, and made a direct simple case. 

Ds frightened the jury with complexity, and threatened them with disaster. Ds stuck doggedly to the public narrative despite contradicting Lamberth's clear ruling in summary judgement on meaning of "reasonableness" here. 

Amazingly, Ds at one point proudly state the DeMarco made his decision "with no consideration of the private shareholders", its surprising that they would even admit this since that is the very definition of an unreasonable action that violates good faith and fair dealing. 

DeMarco as head of FHFA-C stepped into the shoes of the companies, and was required to honor the contracts with shareholders, and could not unreasonably frustrate their contracts which guarantee the possibility of future dividends. Law required considering shareholders, he didn't.