LOS ANGELES – NCUA last night amended a suit it inherited from seven credit union members of WesCorp FCU with additional allegations of breaches of fiduciary duties and gross negligence on the part of fifteen former directors and officers of the one-time $34 billion corporate credit union in connection with over-concentration of certain types of Option ARM mortgage-backed securities.
The suit, which names the CEOs of some of the nation’s biggest credit unions in their responsibilities as WesCorp directors, claims the board and management of the failed corporate were negligent in putting a staggering 95% of all its investments in private label mortgage securities, 37% of them in risky MBS, known as Option ARMs by the end of 2007. When the market for MBS crashed in 2007 and 2008 it caused losses of almost $7 billion that are being realized by the entire credit union system, according to NCUA. “If WesCorp’s officers and directors had imposed prudent concentration limits on its private label MBS, including Option ARM MBS, almost all of this loss would have bene avoided,” NCUA claims in the amended suit.
But NCUA makes new allegations that top WesCorp executives, including CEO Robert Siravo, and Thomas Swedberg, former head of human resources, manipulated the corporate’s Supplemental Executive Retention Plan to pay top executives millions of dollars in unearned compensation. Siravo, who was paid almost $7 million in accumulated retirement benefits the year before was fired after NCUA took over WesCorp in March 2009, earned as much as $2.3 million of unearned compensation from the scheme, NCUA alleges. Todd Lane, WesCorp’s chief financial officer, earned an additional $1.4 million from the scheme, the suit claims.
On May 13, 2008, WesCorp paid Siravo a lump sum SERP payment of $6.9 million, but he was only entitled to $4.5 million, according to NCUA.
Swedberg retired at the end of 2008 and on January 2009 he received a SERP payment of $1.2 million, but was only entitled to $535,000, NCUA claims. Lane, according to NCUA, also received retirement benefits of $1.4 million he was not entitled to.
"As officers of WesCorp, the SERP Defendants had a duty to provide candid and truthful information to the board of directors in matters affecting compensation and employment issues and had a further duty not to conceal material facts related to compensation and employment issues," said NCUA.
The officers and directors “were negligent and grossly negligent and they breached their fiduciary duties to WesCorp by not imposing meaningful concentration limits on the MBS and in particular the Option ARM MBS in WesCorp’s investment portfolio,” claims the amended suit. “Siravo and Swedberg breached their fiduciary duties and defrauded WesCorp with regard to the SERP amendments and increased SERP payments.”
Named as defendants in the NCUA’s amended complaint beside Siravo, Lane and Swedberg, are: Robert Burrell, former executive vice president and chief investment officer; Timothy Sidley, former chief risk officer; and the following directors:
Robert Harvey, the chairman of the board and CEO of Seattle Metropolitan CU; James Jordan, CEO of Schools Financial CU; Timothy Kramer, CEO of Keypoint CU; Robin Lentz, CEO of Cabrillo CU; John Merlo, CEO of Premier America CU; Gordon Dames, former CEO of Mountain America CU; Warren Nakumara, CEO of Honolulu FCU; Brian Osberg, CEO of Potelco United CU; David Rhamy, CEO of Silver State Schools CU; Sharon Updike, CEO of Eagle Community CU; and Bill Cheney, former CEO of Xerox FCU (now Xceed Financial FCU) and now president and CEO of CUNA.
The amended complaint is an outgrowth of a suit brought last year by seven WesCorp member credit unions for which NCUA took over as plaintiff as its role of conservator of WesCorp.
The suit seeks unspecified damages which would be paid by the holders of Directors and Officers Liability policies WesCorp took out on behalf of the defendants.
