Lawyers for the National Credit Union Association told a federal judge in Los Angeles that the federal agency's June 20 suits against JPMorgan and RBS Securities should not exonerate officers and directors of WesCorp FCU in the 2009 failure of the one-time $34-billion corporate credit union.
“The allegations of the JPMorgan complaint are not a shield protecting the defendants from further scrutiny of their own culpability for the failure of WesCorp,” the NCUA lawyers asserted in papers posted by the court.
The WesCorp figures told the court the new NCUA suits claiming JPMorgan and RBS Securities misrepresented the sale of risky mortgage-backed securities to the corporate should disprove the agency’s claims of negligence in a multibillion-dollar federal lawsuit brought against them.
The back-and-forth comes as NCUA says it is planning additional suits claiming misrepresentation by underwriters of MBS in the failure of five corporate credit unions, and as Bank of America has agreed to pay $8.5 billion to investors who say they were harmed by the sale of MBS. Bank of America is now the parent of Countrywide Financial Corp., which was by far the biggest seller of MBS to WesCorp.
NCUA said the MBS included in the JPMorgan claims only amounted to $50 million of the $6.8 billion of losses that caused the San Dimas, Calif., corporate to fail. “The purchases of the securities alleged in the JPMorgan complaint were not a material cause of WesCorp’s failure,” argued the NCUA lawyers. The much bigger cause of the WesCorp failure, according to NCUA, was the concentration of WesCorp’s investments, as much as 70% of the portfolio at one point, in risky MBS.
The WesCorp figures note that the suit filed against JPMorgan Securities alleges that Wall Street firms “misled certain corporate credit unions—including WesCorp—into purchasing AAA-rated residential mortgage-backed securities by making misrepresentations and omissions in registration statements, prospectuses and prospectus supplements.”
WesCorp was one of two corporates—U.S. Central was the other—where NCUA had a full-time examiner on site five days a week.
NCUA is still working to resolve the failure of WesCorp and the four other corporates: U.S. Central FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. NCUA has pegged the losses at WesCorp at almost $7 billion, at U.S. Central at more than $5 billion and at the other three corporates at $1.5 billion.
