LOS ANGELES – NCUA told a federal judge it has the authority to deny insurance coverage for top executives of WesCorp FCU who are defending themselves against a negligence suit brought by the agency because of the federal government’s role as conservator of the failed institution.
In new pleadings filed with the U.S. District Court for the Central District of California, NCUA says federal law prevents the WesCorp executives, CEO Bob Siravo and CFO Todd Lane, from pursuing indemnification from civil claims brought by the conservator of the one-time $34 billion corporate credit union, “regardless of whether they might have had a right to indemnification by the financial institution had it not failed.”
In NCUA conservatorships the federal regulator tyically engages in a variety of steps to slash expenses of the failed credit union, including the repudiation of ongoing employment agreements and commercial contracts, all of which is allowed under federal law.
NCUA also conceded for the first time that it terminated the CUMIS policy insuring directors and officers after it took WesCorp under conservatorship in March 2009. NCUA chose not to renew the policy when it expired, they said in the new court pleading. That means that even if NCUA were to win its negligence suit against the WesCorp figures there would be no insurance to pay a claim. WesCorp at one time had a policy with CUMIS providing $9 million coverage.
NCUA says it declined to renew the policy because CUMIS insisted that the WesCorp losses were not covered under the investment policy WesCorp had with CUMIS.
NCUA has projected the WesCorp failure will cost credit unions $7 billion to resolve.
Siravo and Lane are the only two remaining of 16 original defendants in the case, as claims against 11 WesCorp directors were dismissed a year ago by the judge and claims against three other senior executives have been settled under confidential terms. In recent weeks NCUA has settled claims against Chief Investment Officer Bob Burrell; Chief Risk Officer Timothy Sidley and Director of Human Resources Thomas Swedberg.
NCUA claims in its civil suit that gross negligence on the part of the WesCorp figures allowed the corporate giant to load up on risky mortgage-backed securities far beyond what would have been prudent, precipitating its 2009 collapse.
