BIRMINGHAM, Ala. – Corporate America CU, searching for an accounting for the ill-fated capital conversion at U.S. Central FCU in the winter of 2008, filed suit against NCUA yesterday seeking some 750,000 pages of records related to the failure of the one-time $52 billion corporate credit union.
The Alabama corporate, which initially sued top executives and directors of U.S. Central over the $450 million capital bid, said it has been fighting for the records for the past five months with NCUA, which assumed all of legal rights of U.S. Central upon the March 2009 conservatorship of the corporate. During that time, Corporate America learned that NCUA made over 750,000 pages of documents available to the executives and directors of U.S. Central it is suing and the $3.5 billion corporate wants access to the same documents. The suit asks the federal judge to order NCUA to produce the requested documents within ten days.
The suit surrounds a bid by U.S. Central to bolster its standing with Wall Street rating agencies and investors buying its commercial paper amid growing losses in the fall of 2008 by converting $450 million of member capital shares to a permanent form of paid-in-capital, which were erased by growing U.S. Central losses within weeks. Corporate America is claiming fraud in the conversion of the capital, which was eventually approved by NCUA as part of the regulator’s failed effort to staunch the decline in U.S. Central’s Wall Street ratings, and to enhance its dwindling borrowing capacity.
The Alabama corporate, one of a handful of corporates poised to survive the corporate shakeout, claims it is entitled to repayment of its capital and damages, which could add as much as $10 million to its own diminished capital base. An affirmative court ruling would also boost the capital for the other surviving corporates.
While the bid to recover the funds appears to be a longshot in light of the $7 billion loss projected for U.S. Central, the sum could be made up by NCUA or the director and officers liability insurance provider for the executives and directors of U.S. Central. NCUA has already indicated in plans to file claims against the directors and officers with its insurer, Travelers Casualty & Surety Co.
NCUA declined to comment on the pending litigation.
