JPMorgan Chase late last week told a federal court in Wichita that NCUA's negligence suit against top executives of WesCorp Federal Credit Union proves it was the shortcomings of those executives – and not any misrepresentations by the Wall Street bank's sales force in the sale of MBS – that caused the failure of WesCorp and three other corporate credit unions.
“Although the [NCUA] Board now contends that public information was not sufficiently material to dissuade a reasonable investor from purchasing the MBS, it took exactly the opposite position when it sued the WesCorp directors for ignoring the disclosed risks,” JPM argued in a motion to dismiss filed with the U.S. District Court for the District of Kansas.
In its suit against JPMorgan, NCUA alleges violations of federal and state securities laws and misrepresentations by JPM in the sale of $1.5 billion of MBS to four of the five failed corporates – including U.S. Central CU, Members United Corporate FCU and Southwest Corporate FCU, as well as WesCorp. The suit is filed in U.S. District Court in Kansas, which has jurisdiction over Lenexa, Kan.-based U.S. Central.
NCUA has filed similar suits in the failure of the corporate CUs against RBS Securities, Goldman Sachs, and Wachovia Securities [now a unit of Wells Fargo].
But JPM claimed that NCUA's own case against the WesCorp managers proves it was the managers' negligence that caused the demise of the one-time $34-billion corporate and not alleged misrepresentations by Wall Street salesmen.
In its filings, JPM points to a tentative ruling issued last month in NCUA's suit against RBS Securities in which Judge George Wu, judge for the U.S. District Court for the Central District of California, questioned NCUA's claims of malfeasance in the sale of mortgage-backed securities to WesCorp by RBS Securities.
Judge Wu issued a preliminary ruling that the credit union regulator has failed to show the Wall Street bank disregarded its own underwriting standards in the creation of and sale of the MBS.
In its motion to dismiss, JPM asserted that NCUA has failed to demonstrate that the Wall Street bank made material misrepresentations in its offering documents for the failed MBS. “The [NCUA] Board has failed to do so,” argued JP Morgan, “instead relying on 'naked assertions devoid of further factual enhancement' and conclusory pleading tactics” that are, at most, “simply 'consistent with' liability,'” as Judge Wu ruled in the RBS case last month.
“As in RBS, [NCUA] comes out on the losing side of the debate” as to whether an allegation of systematic disregard is a factual allegation, not merely a conclusion,” argued JPM.
