LOS ANGELES-NCUA told a federal court last week that former officers of WesCorp FCU may not raise the regulators' own oversight and numerous approvals of risky and exotic investments in their defense of a multi-billion dollar negligence suit brought by the credit union agency.
In documents filed with the U.S. District Court for the Central District of California, NCUA lawyers said the regulators' action prior to a conservatorship is not a permissible defense by management of a financial institution failure-even if NCUA approved of the risky investments that brought down the one-time $34 billion corporate credit union.
"Courts in a variety of settings and circumstances have all reached the same conclusion: the pre-failure conduct of a regulatory agency cannot support a legally viable defense, regardless of the level of oversight exercised by the regulatory agency," the NCUA lawyers argue.
The case, if it goes to trial, may be the last and only chance for the public to get a full accounting of NCUA's role in the failure of WesCorp and four other corporate credit unions. The failure of WesCorp erased $2 billion of credit union capital that was owned by 1,000 credit unions.
The NCUA move comes as the WesCorp figures are preparing to call to the witness stand senior NCUA officials involved in the oversight of the failed corporate, including all three NCUA board members, the leaders of the agency's corporate examination program, and examiners who worked on-site at WesCorp, even as the corporate slid into insolvency.
In its suit NCUA claims the former WesCorp figures-CEO Bob Siravo, CFO Todd Lane, Chief Investment Officer Robert Burrell, Chief Risk Officer Timothy Sidley, and Human Resources Director Thomas Swedberg-were responsible for recklessly loading up the corporate giant with risky investments with the aim of boosting its earnings and thus, their own pay.
The WesCorp figures claim NCUA knew intimately of what they were doing in the years leading up to the spectacular 2009 failure and that the NCUA board routinely approved waivers of the agency's own regulations in order to allow WesCorp to invest in the risky securities that eventually caused its demise.
NCUA: Our Actions Irrelevant
But NCUA, citing case law in bank failures, told the court its own behavior doesn't matter. "In short, alleging that the NCUA encouraged, approved, or praised WesCorp's management does not change the fundamental rule that the NCUA's pre-failure conduct cannot, as a matter of law, support the (WesCorp figures') affirmative defenses," said the agency in its filing.
NCUA also told the court it should not have to pay hundreds of thousands of dollars in legal fees already incurred by the WesCorp figures, as required under a CUMIS bond that WesCorp took out for them, until a final ruling on their guilt is established by the court. And even then, any legal fees should be apportioned out of the remaining assets-which are none-after NCUA completes the liquidation of the Western Bridge Corporate, the entity formed after the agency placed it into conservatorship.
If the claims for reimbursement of legal fees are upheld by the court, they should be satisfied by the issuance of a certificate for claim in liquidation entitling the WesCorp figures to a pro rata share of the liquidation assets available to the class of general creditors, said NCUA. The WesCorp figures' legal fees would then by paid, in whole or in part, by NCUA in accordance with the regulatory priority scheme at such time as there are sufficient assets.
The court has already dismissed NCUA claims in the case against former WesCorp directors, who included CEOs of more than a dozen of the biggest credit unions on the west coast and some of the most prominent figures in the credit union community.
