WICHITA, Kan. – NCUA filed suit this afternoon against UBS Securities claiming securities fraud in the sale of $1.1 billion in mortgage-backed securities to U.S. Central FCU and WesCorp FCU.
The suit is the latest of half-dozen brought by NCUA for the 2009 failures of the two corporate giants, which are projected to cost NCUA and the credit union system as much as $12 billion to resolve. NCUA has filed similar suits against JP Morgan Chase, RBS Securities, Goldman Sachs & Co., and Wells Fargo’s Wachovia Securities, and settled similar charges out of court against Deutsche Bank, HSBC and Citibank.
NCUA does not specify damages in the latest suit, which was filed in U.S. District Court in Kansas, where U.S. Central was based, in nearby Lenexa, Kan.
“The strength of our entire financial system relies on trust and accountability,” said NCUA Chairman Debbie Matz. “As our complaint makes clear, UBS Securities violated this trust, which contributed to the collapse of two corporate credit unions and the resulting crisis in the credit union industry. NCUA has worked to restore stability to the credit union system. Now we intend to hold UBS Securities, as well as other responsible parties, accountable.”
NCUA’s suit alleges UBS Securities made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions. The complaint also alleges systemic disregard of the underwriting guidelines stated in the offering documents. These misrepresentations caused US Central and WesCorp to believe the risk of loss was minimal, when in fact the risk was substantial.
US Central and WesCorp were two of five corporate credit unions--actually credit unions for credit unions, or bankers' banks--that failed due to large investments in risky residential mortgage-backed securities. The five failures are projected to cost the credit union system as much as $20 million to resolve.
