Court Rejects Wisconsin Corporates Bid For U.S. Central Funds
MILWAUKEE – A federal judge here ruled that Corporate Central CU and a handful of other corporate credit unions are not entitled to as much as $100 million of so-called excess investments they held in U.S. Central FCU before last year’s failure of the corporate giant.
The $2 billion Wisconsin corporate asserted it was entitled to $6 million in excess investments from U.S. Central that the one-time $52 billion corporate routinely refunded to its 27 corporate members before the U.S. Central board abruptly changed its bylaws in December of 2008, just weeks before NCUA took it over. After NCUA took U.S. Central under conservatorship in March of 2009 it barred all refunds of excessive investments.
A ruling for the Wisconsin corporate could have meant as much as $100 million paid to CorpCen and a handful of other corporates owed excess investments, according to documents submitted in the case.
But in dismissing the suit, U.S. Judge Lynn Adelman ruled that NCUA as conservator had the right to withhold excess investments as part of the government’s efforts to preserve dwindling capital and stem a member run on U.S. Central. “The NCUA’s decision likely prevented a run on excess investment on members’ capital accounts, surely a desirable outcome,” wrote Judge Adelman in her seven-page ruling.
The suit exposed allegations of insider dealings in the failure of U.S. Central. Lawyers for CorpCen alleged that the board of U.S. Central, which was dominated by representatives of several troubled corporates including WesCorp and Members United, changed the bylaws in December 2008 to withhold excessive investments because it would not harm their own corporates because their corporates had no excesses. The change in bylaws temporarily increased the dwindling capital for U.S. Central, delaying a capital call for the troubled corporates, CorpCen alleges in the suit.
John McKechnie, a spokesman for NCUA, declined to speak about specifics of the case, saying only, “We agree with the decision. Beyond that, the decision speaks for itself.” Lawyers for CorpCen did not return phone calls.
The suit is one of three in which credit unions are fighting over the carcasses of U.S. Central and WesCorp, with one corporate suing U.S. Central over the December 2008 reclassification of some $450 million of U.S. Central capital soon to be erased; and seven credit unions suing directors and officers of WesCorp over the failure of the one-time $34 billion corporate. As conservator for both corporate giants, NCUA has assumed the role of defendant in both those suits as well.