The federal regulator of credit unions has filed another lawsuit alleging that misrepresentations in the sale of mortgage-backed securities led to the failure of a corporate credit union. Damages sought in three cases filed so far exceed $1.5 billion, while as many as seven additional cases could be filed.
Last month, J.P. Morgan Securities LLC and RBS Securities Inc. were sued in separate actions in U.S. District Court for the District of Kansas by the National Credit Union Administration.
The two complaints allege that the defendants violated federal and state securities laws and misrepresented the sale of hundreds of securities to five failed credit unions that the NCUA took over as liquidating agent. More than $870 million in damages is sought from the two actions.
On Monday, the Alexandria, Va.-based regulator said it has filed another lawsuit in the same federal court against RBS.
The latest action also alleges violations of federal and state securities laws and misrepresentations in the sale of MBS to Western Corporate Federal Credit Union. NCUA is liquidating agent of the failed institution. Damages of $629 million are sought.
Western Corporate was placed into conservatorship in 2009 by the NCUA. The San Dimas, Calif.-based institution had $23 billion in assets and around 1,100 retail credit union members at the time of its demise.
NCUA claims in the latest lawsuit that underwriters of “questionable” MBS acquired by WesCorp made numerous material misrepresentations in offering documents, giving WesCorp the impression that the securities involved minimal risk even though the actual risk was substantial. The MBS dramatically dropped in value, leaving WesCorp insolvent.
“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 five, large wholesale credit unions,” the statement said.
NCUA Chairman Debbie Matz noted in the announcement that the agency hopes that all the litigation helps in the recovery of “damages in the billions of dollars.”
In all, five corporate credit unions — U.S. Central, WesCorp, Southwest Corporate, Members United Corporate, and Constitution Corporate — failed since the start of the financial crisis.
Matz added that “the corporate credit union collapse remains the largest crisis ever faced by credit unions.”
