NCUA Files Third Suit Against Investment Firms (Misc News: July 19, 2011)
The NCUA filed another suit against an investment firm, accusing it of misrepresentations in the sales of securities to the failed Western Corporate FCU, the third such suit filed in an effort to recover damages after five corporate credit unions were brought down in the wake of the mortgage-baked securities crisis.
NCUA’s suit against RBS Secuirities Inc. claims the sellers and underwriters of the questionable securities made numerous material misrepresentations in the offering documents. These misrepresentations caused WesCorp to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial. The mortgage-backed securities experienced dramatic, unprecedented declines in value, effectively rendering WesCorp insolvent. The combined suits are the culmination of lengthy investigations into the circumstances surrounding the purchases of these securities.
Any recoveries from these legal actions would reduce the total losses resulting from the failure of the five corporate credit unions. The five wholesale credit unions placed into NCUA conservatorship and now liquidated are: U.S. Central, WesCorp, Southwest Corporate, Members United Corporate, and Constitution Corporate.
This suit seeks $629 million in damages. With the two previous filings, the amount of damages sought by NCUA totals more than $1.5 billion.
“While the credit union industry generally fared better than the rest of the financial world over the last few years, the corporate credit union collapse remains the largest crisis ever faced by credit unions,” NCUA Chair Debbie Matz said.
“Fortunately, given the liquidity in the system, the average consumer is insulated from these past losses. However, it remains our statutory duty to replenish the insurance fund that protects consumer deposits by seeking recoveries.”
Last month, the regulator filed similar lawsuits against J.P. Morgan Securities and another against RBS. Anticipating a total of five to 10 actions, additional lawsuits may follow in order to recover losses from the purchase of securities that caused the failures of the five, large wholesale credit unions.