The National Credit Union Administration said Monday it has filed two suits against securities firms alleging violations of federal and state securities laws and misrepresentations in the sale of hundreds of mortgage-backed securities.
The NCUA said that in addition to the two suits against J.P. Morgan Securities LLC and RBS Securities Inc. there could be additional litigation in an effort to recover losses from the purchase of securities that led to the failure of five large wholesale credit unions.
A spokesman for RBS Americas told this publication the company has a policy of not commenting on anything related to litigation.
A call to a spokesman for JPMorgan had not been returned at press time Monday.
NCUA board chairman Debbie Matz said in a press release that the NCUA’s first two legal actions involve more than $800 million in damages and total planned legal actions could seek billions of dollars in damages.
The administration filed the suits in the Federal District Court for the District of Kansas, which has jurisdiction over the former headquarters of one of the wholesale credit unions placed into NCUA conservatorship, U.S. Central.
The suits allege sellers made numerous material representations in the offering documents that caused the corporate credit unions that bought them to believe the risk of loss was “minimal,” when it turned out it was large enough for dramatic unprecedented declines in MBS to lead to these credit unions’ insolvency.
NCUA recently completed its effort to resecuritize “problematic” MBS and sell them back to the market in the form of government guaranteed notes. This effort brought in about $28.3 billion in proceeds.
