LOS ANGELES – NCUA told a federal court here yesterday it should not be required to indemnify or pay hundreds of thousands of dollars in legal fees for the defense of top executives of WesCorp FCU it is suing unless or until the executives prove they were not responsible for the failure of the one-time $34 billion corporate credit union.
NCUA, which has assumed all rights of the failed corporate giant as its liquidating agent, has denied coverage for former WesCorp CEO Bob Siravo, Todd Lane, its chief financial officer, Robert Burrell, chief investment officer, Timothy Sidley, chief risk officer and Thomas Swedberg, head of human resources, under a CUMIS bond indemnifying top directors and officers because NCUA claims the executives were responsible for the massive corporate failure.
In counterclaims brought against NCUA, the executives say a CUMIS D&O policy held by WesCorp (now NCUA) should pay their legal defense costs and indemnify them for any judgment against them in the suit. Several of the former officers, including Siravo, Lane and Burrell, say they have already racked up more than $100,000 in legal costs to defend against the NCUA charges.
NCUA noted the irony if required to indemnify the WesCorp figures for potential damages in the case. “Allowing indemnification for the NCUA’s lawsuit would lead to the “absurd result” that the NCUA could succeed in its suit against the (WesCorp executives), and then recover from itself,” said the credit union regulator in its pleading.
The NCUA motion, filed with the U.S. District Court for the Central District of California, came as the agency was announcing two separate settlements with Citigroup and Deutsche Bank Securities totaling $165 million in the failure of WesCorp and four other corporates, U.S. Central FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. The failure of the five corporate has cost the nation’s credit unions an estimated $10 billion to resolve so far, including $3.3 billion in three annual assessments and some $6.5 billion in lost capital invested in the corporates.
In its motion to dismiss the counterclaims NCUA says the court lacks jurisdiction over the legal defense claims because California law requires indemnification only by solvent institutions. “As a matter of law, corporate officers sued by the receiver or liquidator of a failed financial institution may not obtain indemnification from the estate of the failed institution, even if the officers ultimately defeat the claims against them,” asserts NCUA.
