MIAMI – A federal court has appointed a former federal judge to mediate a dispute between Space Coast CU and Wall Street banks over $100 million of risky investments the banks sold to Eastern Financial Florida CU, which was acquired by Space Coast after the 2009 failure of the one-time $2.4-billion credit union.
But the court said the mediation can wait until after it rules on an expected motion by the Wall Street banks – including Barclays Capital, Bear Stearns (now a unit of JP Morgan Chase), Merrill Lynch (now Bank of America), Wachovia Securities (now part of Wells Fargo Securities), UBS Securities, and rating agencies Standard & Poor’s and Moody’s Investors – to dismiss the case. The dispute is over collateralized debt obligations, or CDOs, sold to the failed credit union giant.
The court appointed Layn Phillips, a partner in the Newport Beach office of Irell & Manella LLP and a former U.S. Attorney and a former U.S. District Judge, to mediate the non-binding sessions between the parties.
The suit by Space Coast claims the Wall Street players engaged in common law fraud, negligent misrepresentation, unjust enrichment and constructive trust in the sale of the CDOs. Eastern Financial was the only natural person credit union in the country to invest in CDOs, by special permission of the Florida credit union regulator.
Eastern Financial, a 72-year-old credit union originally chartered to serve employees of now-defunct Eastern Airlines, lost almost its entire investment on the CDOs. It subsequently was acquired by Space Coast, a $1.6-billion credit union 175 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.
