Fannie and Freddie Boards did not consent, cont.

The following exchange is from Tim Howard’s blog:

The Takeover and the Terms

  1. That’s the first I’ve heard of this, and I would be surprised if it were true. Who would have put such an order in place, and what mechanisms would they have for enforcing it? If any readers have contrary information, however, they should correct me.


    1. Hi Tim. I may not have the definitive information that would set the record straight. However, the board members at the time would be able to clarify.

      As we both exchanged related messages on a previous post here, I referenced a blog post of my own which discussed board consent (

      On a side note, I speculate that the plaintiff lawyers are disinterested in the possibility that board directors did not vote to approve the c-ships. If the directors did not approve (which Lockhart and Paulson both said they did), then they should have publicly denounced the action. Further, they should have filed lawsuits against the Gov. I assert that plaintiff lawyers ignore this point as that would make Fan and Fred themselves at least partially culpable (through their directors) for the take-over. If my conjecture is correct, I disagree with the plaintiffs’ strategy. The point is the Gov coerced the boards.

      So, to now postulate on the gag order question… Would you agree that it’s plausible that Paulson & Co. told the small groups he met with (CEO, GC, outside counsel) for each company that they should inform their board members not to fight the illegal take-over? Is it possible that non-disclosure agreements were received in exchange for the Gov not pursuing fraud, breach of fiduciary responsibility, etc. etc. etc. personally against each board member?

      Paulson was hellbent to intimidate and control everyone…!

      And of course Paulson also pointed out to the board directors the following passage in HERA in further exchange for the board members’ non-disclosure agreements (aka “Gag Order”):

      OF CONSERVATOR OR RECEIVER.—The members of the
      board of directors of a regulated entity shall not be liable
      to the shareholders or creditors of the regulated entity for
      acquiescing in or consenting in good faith to the appointment
      of the Agency as conservator or receiver for that regulated

      I’m no doubt a lone wolf on this one… not really sure why… Seems highly relevant and incredibly significant to me. And yes, I’ve heard the “Fog of War” argument many times, but I’m not buying it! What happened was wrong, no…illegal… and all of the facts should be made public.


    2. jtimothyhoward
      FEBRUARY 25, 2016 AT 7:58 PM
      Fanofred: You may in fact be a lone wolf on this one. I’ve been on corporate boards, and the last thing a board member wants to do is get into a fight with a government regulator. Paulson knew that, which is why somebody–I’m not sure we’ll ever know who–put the clause into HERA you cited above and I’ve cited previously, exempting Fannie’s and Freddie’s board members from shareholder lawsuits if they caved to Paulson’s demands that they consent to conservatorship. I don’t think it would have made a bit of difference if there had been a full board vote or not; either way, they would have consented. (And this is “inside baseball,” but Paulson’s book mentions that when he was pushing Fannie’s executives and board members to give in to conservatorship, they had their legal advisor, Rodgin Cohen of Sullivan & Cromwell, with them. I know Cohen, and he’s as good as they come. He knew there was no way Fannie could fight this.)

      1. fanofred
        FEBRUARY 25, 2016 AT 8:41 PM
        Thanks Tim. Yes, according to the official Treasury calendar Rodgin Cohen was in attendance at the meeting with Paulson, Bernanke and Lockhart, but not with a full board of either company. I am sure the gentleman is very smart…

        Evidently, we disagree on whether the point is relevant. From my understanding, the Delaware case if based completely on following corporate law.

        So, what is different in asking a) is a company allowed to pay in dividend it’s entire net worth to only one class of shareholder vs b) is the government allowed to claim that boards of directors consented (procedurally and legally voted in favor of) a conservatorship which in effect nationalized their companies?

        I don’t mind being the lone wolf here. One day the truth will be known.

3 thoughts on “Fannie and Freddie Boards did not consent, cont.

  1. Pingback: Happy Labor Day America! | thetruthaboutfannieandfreddie

  2. “acquiescing in or consenting in good faith to the appointment
    of the Agency as conservator”
    I think the term “good faith” should have some meaning in this context for the board. If all board members demonstrate a flight response over a fight response when it comes to government dealings it is indicative of “bad faith” also required was a disclosure of the benefit that they would receive benefit and should have recused themselves from the vote (if there was a vote, I tend to agree that this step was skipped). This is where the courts must step in and address coercion, undue influence, quid pro quo, and the good faith standard. Any objective observer (jury) is going to conclude that the structure of board acquiescence was coercive and forced and even bought with a non-prosecute agreement. It took Howard and Raines 6 years and millions of dollars to defeat the government claims against them. Did jewish owned business in NAZI Germany really have a ‘good faith’ choice of weather to turn to company over to the government?


    • Agree on all points. I do not believe there was an official board meeting(s). But even if there was, all the points you state make the action illegal – both according to HERA and corporate by-laws.


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