LOS ANGELES – Top officials of NCUA are scheduled to give depositions in NCUA’s lawsuit against officers of WesCorp FCU next week, promising to shed new light on the corporate credit union debacle.
The session could give fuel to both WesCorp defendants and Wall Street banks, all of whom claim NCUA cannot argue the failure of WesCorp was caused by its managers’ negligence and by the dishonesty of people who sold the one-time $32-billion corporate billions of dollars in mortgage backed securities.
It is not clear who NCUA will send to the federal court session because the regulator is allowed to send anyone who can best explain the agency’s oversight of corporate credit unions in the 2007-2009 periods. Issues will include all of the warnings and directives NCUA may have given credit unions and corporate credit unions on their purchases of mortgages and MBS, and the role of the NCUA Board in granting WesCorp waivers of its investment rule in order to buy risky securities.
The session could be embarrassing for NCUA because the WesCorp figures claim their corporate giant was the most watched credit union in the country, complete with an on-site NCUA examiner five days a week, and that NCUA approved of all of its actions leading up to the spectacular March 2009 failure.
Lawyers for the WesCorp figures plan to argue that NCUA’s charges against the WesCorp figures contradict separate suits against JP Morgan Chase, Goldman Sachs and RBS Securities, who sold WesCorp billions of dollars in MBS. “In our case, they say the WesCorp officers were grossly negligent in buying the MBS and that was the cause of the failure,” said Kenneth Fitzgerald, the lawyer for Todd Lane, former chief financial officer for WesCorp. “In the Kansas case they say WesCorp was misled into buying the mortgage-backed securities. They can’t have it both ways.”
“NCUA is lashing out at everybody,” the Los Angeles lawyer told Credit Union Journal yesterday. “But I don’t think it’s a credible or consistent position to take.”
The variety of suits are critical to NCUA, which hopes any recovery will help defray the costs of the WesCorp failure, projected to be as much as $7 billion.
The apparent conflict between the NCUA positions on WesCorp and with the Wall Street banks goes even further because it also will affect how a court judges similar NCUA claims in the failures of U.S. Central FCU, the one-time $52-billion central bank for credit unions, and two other $14-billion corporates, Members United and Southwest Corporate, as well as the $1-billion Constitution Corporate.
