In one of the most ambitious lawsuits of its kind so far, Space Coast Credit Union has filed a civil damage claim against several investment banking firms that sold $150 million of mortgage-backed CDOs to Eastern Financial Florida Credit Union, which failed in 2009, and was then acquired by Space Coast.
The CDOs were bought in private placements and were not registered with the Securities and Exchange Commission, according to the Inspector General of the National Credit Union Administration.
Two rating agencies were named as defendants as well. Excluding corporate credit union failures, Space Coast's failure was one of the largest CU failures ever. It had $2.4 billion of assets.
Filed in U.S. District Court for the Southern District of Florida, the defendants include Merrill Lynch (now a unit of Bank of America), Bear Stearns (now a unit of JP Morgan Chase); Wachovia Securities (now part of Wells Fargo Securities); UBS Securities; and Barclay's Capital. The rating agency defendants include Moody's Investors Service, and Standard & Poor's. Former Lehman CEO Richard Fuld is also a defendant.
In its lawsuit, Space Coast claims the Street firms engaged in common law fraud, negligent misrepresentation, and unjust enrichment in the sale of $150 million of CDOs.
Eastern Financial was the only “natural person” credit union in the U.S. to invest in CDOs -- by special permission of the Florida credit union regulator.
In business for 72 years, Eastern was originally chartered to serve employees of now-defunct Eastern Airlines. It lost almost its entire investment on the CDOs and was subsequently acquired by Space Coast, a $1.6 billion credit union 100 miles north along Florida's Space Coast, in Melbourne.
The claims in the suit are similar to those in a separate action filed in 2010 by Space Coast against Barclay's Capital over a $10 million slice of the CDOs. That suit is still pending.
Lawyers for Space Coast did not immediately return a phone call seeking comment. The defendants are expected to fight the claims.
