Judge Dismisses NCUA Case Against WesCorp Directors
LOS ANGELES – In a major defeat for NCUA, a federal judge Friday agreed to dismiss negligence charges brought by the federal regulator in a civil suit against 11 directors of the one-time $34 billion corporate, all of them prominent figures in the credit union movement.
In an order posted Friday, U.S. Judge George Wu agreed to dismiss NCUA’s claims against the former WesCorp directors, ruling NCUA failed to prove its case that the directors’ conduct in loading up the corporate with risky mortgage-backed securities to chase higher yields violated the California Business Judgment Rule. “They may have made choices – or not made other choices – with which the NCUA disagrees, but that does not mean they failed in their responsibilities so severely that they lose the protection of the Business Judgment Rule,” Judge Wu explained earlier.
The dismissal of the civil claims will make it more difficult for NCUA to prove its case if it files bond claims against directors and liability policies held in the names of those WesCorp directors.
In issuing his order, Judge Wu cited new lawsuits filed by NCUA against JP Morgan and RBS Securities alleging the Wall Street banks misrepresented the true nature of billions of dollars of MBS they sold to WesCorp. In its suits, NCUA conceded the WesCorp figures were “not aware of the untrue statements or omissions” or “did not know of these untruths or omissions” made by the securities firms “at the time WesCorp purchased the [MBS].”
The judge ruled that NCUA had several opportunities to argue the Business Judgment Rule violation but failed to persuade him.
Defendants in the suit include some of the best known credit union leaders, including: CUNA President Bill Cheney, who served on the WesCorp board as CEO of Xerox FCU (now Xceed Financial CU), Robert Harvey, then CEO of Seattle Metropolitan CU; James Jordan, Schools Financial CU; Timothy Kramer, Keypoint CU; Robin Lentz, Cabrillo CU; John Merlo, Premier America CU; Gordon Dames, former CEO of Mountain America CU; Warren Nakumara, Honolulu FCU; Brian Osberg, Potelco United CU; David Rhamy, Silver State Schools CU; and Sharon Updike, CEO of Eagle Community CU.
Also cleared by the judge’s order are Robert Burrell, former chief investment officer for WesCorp, and Timothy Sidley, who was its chief risk officer.
But the judge let stand NCUA’s charges of unjust enrichment against three WesCorp executives: former CEO Robert Siravo, former CFO Todd Lane and Vice President Human Resources Thomas Swedberg, who NCUA claims manipulated the company’s executive compensation plan for their personal benefit.
It was a good week for CUNA’s Cheney, who was named defendant in a suit brought by Corporate America CU against directors of U.S. Central FCU, where Cheney also served on the board. That suit was settled earlier last week under confidential terms, just as it was about to go to trial.
Facing mounting losses estimated to be as much as $7 billion, WesCorp was taken over by NCUA in March 2009 and is one of five failed corporates – along with U.S. Central, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU – that have caused a massive resolution plan by NCUA that is projected to cost the credit union industry approximately $15 billion to $20 billion to resolve.
The WesCorp action is the only suit filed so far by NCUA seeking recompense from any of the figures from the five corporate failures.