NCUA Sues another Big Bank over Securities Scandal (Misc News: November 30, 2011)
The NCUA has filed suit against another one of the Wall Street firms at the center of the mortgage backed securities scandal that brought down several corporate credit unions.The suit, filed in U.S. District Court in Kansas, alleges that the company formerly known as Wachovia Securities, sold mortgage-backed securities that were “destined from inception to fail,” to U.S. Central FCU and Western Corporate FCU. The NCUA called the investments “significantly riskier” than represented in offering documents.
North Carolina-based Wachovia was taken over by Wells Fargo in 2008 and is now called Wells Fargo Securities.
In 2006, U.S. Central and WesCorp each purchased about $44 million in residential mortgage-backed securities from Wachovia, with U.S. Central later purchasing an additional $112 million in third-party originated securities underwritten by Wachovia. The collapse of the housing market caused the value of the securities to plummet, leading to huge losses for the corporates and a loan from the Treasury Department to rescue them. The credit union system continues to pay for that rescue through annual assessments.
In its filing, the agency claims Wachovia made material misrepresentations which led the corporate to believe the securities had minimal risk.
NCUA Chair Debbie Matz said in a statement that the agency intends to “hold responsible parties accountable for their actions,” and that the NCUA would do whatever it could to seek “maximum recoveries” for the losses the corporate credit unions incurred. The NCUA did not specify the damages it is seeking from Wachovia.
This is just the latest in a string of legal actions the agency has taken against firms that sold RMBS to corporate credit unions. Similar lawsuits seeking billions of dollars in damages have been filed against other Wall Street firms, including Goldman Sachs, RBS Securities and J.P. Morgan.
Earlier this month, the agency announced settlements totaling $165.5 million with Citigroup and Deutsche Bank Securities.