Examples of Hedge Fund Litigation Regarding Debt and Dividends – Fannie Mae, Freddie Mac, and
The litigation industry continues to evolve and create new opportunities. A business model for hedge funds revolves around buying distressed debt at low prices, and then investing in legal proceedings to collect on the debt. To see the model at work on a large, global scale, consider the ongoing saga arising from debt issued by Argentina. For a much smaller version but with high impact, consider this September 30, 2014 Financial Times story about the possibility of a hedge fund more or or less shutting down the island nation of Narau.
Another example arises from hedge fund speculating in shares of Fannie Mae and Freddie Mac, and arguing about dividend rights and obligations related to the bail out terms. Like Hank Greenberg, the hedge funds claim the government actions took their property. However, most or all of the shares were acquired after the relevant events had occurred. Yesterday, the hedge funders lost the first ruling in a series of similar cases. A September 30, 2014 Bloomberg article provides a very good summary of the cases, and relevant links. The WSJ includes an October 1, 2014 article on the same topic. Some of the financial consequences of the ruling are detailed in an October 1, 2014 article at Bloomberg News, describing the ruling as “right hook.”