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Michigan Credit Union League Home » Information Services » Publications » News Articles  

NCUA Files Suit Against Goldman Sachs in Mortgage-backed Securities Debacle   (Misc News: August 10, 2011)

The NCUA has filed suit against Goldman Sachs Group, accusing the investment firm of violating federal and state laws in the sale of mortgage-backed securities to now-failed corporate credit unions.

The federal agency said in a statement that it is seeking damages of more than $491 million from Goldman Sachs.

This is the fourth suit filed against investment firms in attempt to recover nearly $2 billion from sellers and underwriters of “questionable” securities, the NCUA said. In all, the agency expects to file between five and 10 such cases.

“NCUA continues to carry out our responsibility to do everything reasonable in our power to seek maximum recoveries,” NCUA Chair Debbie Matz said. “Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.”

Bloomberg reported that a Goldman Sachs spokesman declined comment on the lawsuit.

The case was filed in federal court in Los Angeles. The NCUA said Goldman Sachs misrepresented securities in offering documents, causing the credit unions to believe the risk of loss was minimal when it was substantial.

Goldman Sachs “systematically abandoned the stated underwriting guidelines described in the offering documents” for the mortgages in the pools of collateralized residential mortgage-backed securities that it underwrote, the NCUA said in its complaint, according to Bloomberg.

The mortgage-backed securities experienced dramatic, unprecedented declines in value, effectively rendering five corporates insolvent. The combined suits are the culmination of lengthy investigations into the circumstances surrounding the purchases of these securities, the NCUA said.

Previously, the NCUA also filed suit against J.P. Morgan Securities and two separate suits against the Royal Bank of Scotland (RBS) seeking damages in the mortgage-backed securities scandal.

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, Western Corporate, Southwest Corporate, Members United Corporate and Constitution Corporate.

“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,” 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.”

Click here to read the NCUA statement on the lawsuit filing.

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