Subpoenas Issued In Lawsuit Against U.S. Central Corp
BIRMINGHAM, Ala.-Corporate America CU, which is suing officers and directors of U.S. Central FCU for damages, last week issued subpoenas to Ernst & Young, RiskSpan, Callahan & Associates, Clayton Financial Services and PIMCO, as it seeks a courtroom accounting of the one-time $52 billion corporate's desperate attempts to shift capital accounts to cover burgeoning losses in its final days before an NCUA takeover.
The subpoenas, obtained by Credit Union Journal, seek to establish whether officers and directors of U.S. Central knew the extent of the spiraling losses in December 2008, when it shifted $450 million of semi-permanent member capital accounts to a new paid-in-capital instrument, known as PIC 2, which was eliminated by losses within weeks. Corporate America claims it and U.S. Central's 26 other corporate members were kept in the dark about the extent of U.S. Central's losses at that time and were never given an opportunity to withdraw the at-risk capital.
It has been alleged that the conversion to permanent capital, known as Tier 1 capital, was done to impress the Wall Street ratings agencies, which were in the process of downgrading U.S. Central, at a steep price to its borrowing costs. NCUA said at the time "increasing the amount of Tier 1 capital will enhance US Central's AA+ debt rating and generally requires no additional funding by members. Additionally, US Central members will receive more favorable returns on US Central investments due to US Central's high credit quality and lower debt costs."
The suit, which threatens to open deep wounds within the credit union movement, names as defendants: Francis Lee, former CEO of U.S. Central; Joseph Herbst, former chairman of the board of U.S. Central and current president of Members United Corporate FCU; Bob Siravo, former director of U.S. Central and president of WesCorp; Bill Cheney, former director of U.S. Central and newly appointed president of CUNA; David Brehmer, former U.S. Central director and currently president of Carolina First Corporate CU; John Franklin, CUNA's chief operating officer who sat on the board of U.S. Central; Larry Eisenhauer, former director and currently president of Kansas Corporate CU; Jim Hansen, a former director and former president of Virginia Corporate FCU; Greg Moore, a director and now president of Georgia Central CU; and, Charles Thomas, former director and currently head of West Virginia Corporate CU.
All of the individuals were dismissed from their U.S. Central roles by NCUA immediately after last year's federal takeover.
Also named in the suit are David Dickens, former head of asset/liability management at U.S. Central, and Kathy Brick, chief financial officer at U.S. Central.