LOS ANGELES – NCUA on Thursday told a federal court here Goldman Sachs & Co. violated an agreement between the two parties that suspended the running of the statute of limitations on securities claims related to the failures of U.S. Central FCU and WesCorp FCU while the two sides negotiated a settlement.
“It is undisputed that Goldman willingly entered that agreement in order to forestall litigation. In doing so, Goldman expressly promised not to assert any statutes of repose or limitation in defense,” charged NCUA in a new legal filing related to a suit over $1.1 billion worth of faulty mortgage backed securities the Wall Street bank sold to the two corporate failures.
By allegedly entering into a tolling agreement, the regulator said Goldman agreed to a halt in the running of the statute of limitations or repose on the allegations in the suit regarding the MBS sales, some of which occurred as long ago as 2005, according to NCUA. As part of its defense in the case, Goldman asserts that either the federal or state statute of limitations or the statute of repose expired by the time NCUA filed its suit in July 2011. A statute of repose, as with a statute of limitations, cuts off certain legal rights if they are not acted on by a certain deadline.
The dispute has enormous importance for the cases against Goldman and three other Wall Street banks, including JP Morgan Chase, RBS Securities and Wells Fargo’s Wachovia Securities unit, brought by NCUA over the sale of billions of dollars in MBS to the failed corporates. Defendants in the suits claim the statutes of limitations and of repose have expired in most of the claims and have asked the courts to dismiss the suits on those grounds.
NCUA claims the statutes did not start running for these cases until the regulator took over U.S. Central and WesCorp in March 2009, well after the sale of the MBS to U.S. Central and WesCorp.
According to NCUA, Goldman entered into a tolling agreement on Aug. 30, 2010, to stop the running of the statute of limitations. The agreement eventually ran for nine months, until May 31, 2011.
State law in Kansas, where one-time $52-billion U.S. Central was based, allows for a two-year statute of limitations and a five-year statute of repose, according to NCUA. Meaning, NCUA and Goldman entered into the tolling agreement before the statute of repose had expired.
“Almost immediately after this litigation commenced, Goldman reneged on its express, voluntary agreement by asserting that ‘statutes of repose cannot be tolled by a private tolling agreement,’” said NCUA.
“Goldman, a highly sophisticated entity, freely agreed to toll the statute of repose in exchange for the consideration of NCUA’s forbearance from suit for a time,” said the agency. “There is no legal, equitable, or public policy reason for refusing to enforce Goldman’s promise.”
In its defense in the case, Goldman argues that the two corporates were sophisticated investors who bought $30 billion worth of residential MBS between them and were issued comprehensive prospectuses detailing the numerous risks before they were sold the doomed investments. Goldman also noted that NCUA has blamed various sources for the two huge failures: former WesCorp executives in a civil suit on one hand, and several Wall Street banks on the other hand.
Attorneys for Goldman Sachs did not return a phone call seeking comment yesterday.
