Space Coast CU Plans More Wall Street Suits Over Eastern Financial Florida CU Failure
NEW YORK – Space Coast CU, which filed suit last week against Barclays Capital over CDOs the investment bank sold to Eastern Financial Florida CU, is expected to file similar suits over the next few weeks against other Wall Street banks in the 2009 failure of the one-time $2.4 billion credit union.
“There will be others coming,” one source involved in the case told Credit Union Journal Friday.
Space Coast filed a civil suit in federal court last week claiming that Barclays sold Eastern Financial a $9.5 million slice of a collateralized debt obligation, known as a CDO, that was intended to fail and did fail within six months after issuance, all the while earning Barclays money because it bought insurance – betting the risky bond would fail.
Barclays officials did not return phone calls seeking comment.
Space Coast acceded to all legal rights in the case after it acquired Eastern Financial in a purchase and assumption agreement in June 2009. The deal turned Space Coast, based at the Kennedy Space Center in Melbourne, Fla., into one of the biggest credit unions in the country with $3.3 billion in assets.
A review of the Eastern Financial failure by NCUA found the venerable Miami credit union failed because of $150 million worth of CDOs that were rendered worthless shortly afterward that it bought from a variety of Wall Street banks. It was the biggest failure ever of a natural person credit union.
In its suit, Space Coast called the Eastern Financial CDO “materially similar” to the controversial CDO sold by Goldman Sachs in 2007 called Abacus. Goldman agreed to pay $550 million to settle SEC charges that it sold the bonds, then bet for it to fail.
Space Coast claims the underwriters misled officials with failed Eastern Financial when they said State Street would be choosing the collateral for the CDO, when it was actually Barclays – the same firm that is underwriting NCUA’s $30 billion offering or corporate bailout bonds – that was choosing the collateral they thought was likely to fail.