LOS ANGELES — NCUA told a federal court last week that it will add new charges against directors and officers of WesCorp FCU, even as its efforts to hold leaders of the corporate credit union accountable for the failure of the $34 billion corporate may be slipping away.
NCUA said members of WesCorp's budget and asset/liability committees, all of whom were CEOs of big credit unions themselves, should have moved to rein in WesCorp executives as the corporate dove deeply into the market of newly created Option ARM securities, constructed from what are commonly referred to as "liar loans." By the end of 2007, WesCorp had more than $9 billion of its $30 billion portfolio sunk into the risky MBS, causing the brunt of an eventual $7 billion loss at the corporate. All the while, WesCorp directors did nothing to require concentration limits for the risky investments or to challenge what turned out to be erroneous Triple A ratings on the bonds, according to NCUA.
"The members of WesCorp's board were aware that AAA ratings assigned to a private label MBS by a rating agency was not a guarantee of its safety," claims NCUA in its motion. "WesCorp's investment policies therefore required a thorough review of all prospective purchases of AAA rated private label MBS, including an analysis of their credit risk and at least after-the-fact approval of the purchases by the (asset liability committee) and the board."
The new charges come after the court dismissed part of NCUA's suit revolving around claims that the directors violated California's business judgment rule in overseeing the demise of WesCorp (
In its latest claims, NCUA is seeking to establish that the directors violated the standard of care established in federal law.
"In light of the allegations that those acts and omissions caused the failure of WesCorp and wrought significant harm to the national credit union system, the NCUA respectfully submits that it has stated a claim against Director Defendants that is not barred as a matter of law by the business judgment rule."
