Like other litigation NCUA is pursuing against Wall Street firms, this latest suit alleges the firms made misrepresentations in connection with the underwriting and subsequent sale of mortgage-backed securities to U.S. Central and WesCorp. Both corporate credit unions became insolvent and were subsequently placed into NCUA conservatorship and liquidated as a result of losses from these faulty securities. These failures subsequently caused significant losses to the credit union system.
“Firms like Morgan Stanley sold securities that turned out to be faulty, triggering a crisis in the credit union industry that has been extremely expensive to contain and repair, and credit unions are still paying the tab,” said NCUA Board Chairman Debbie Matz in a statement. “All the credit unions we supervise and insure are sharing this burden. The people who are accountable, those who precipitated this crisis, should be required to shoulder that burden, as well.”
The complaint alleges the offering documents of the securities sold to the failed corporate credit unions contained statements of material fact that were not true or omitted material facts. The originators systematically abandoned the stated underwriting guidelines in the offering documents, according to the complaint, and the securities were significantly riskier than represented. The result, complaint says, was that the securities were destined from inception to perform poorly.
The agency currently has similar suits pending against Barclays Capital, Credit Suisse, Goldman Sachs, JP Morgan Securities, RBS Securities, UBS Securities, Wachovia, Bear Stearns and Washington Mutual.