WICHITA, Kan. Lawyers for Nomura Home Equity Loan, one of more than a dozen subprime lenders being sued by NCUA for the failure of some corporate credit unions, on Friday told a federal appeals court the agency’s in-house examiners at two of the failed corporates belie NCUA’s argument that it had to wait until after taking over before pursuing legal claims.
The regulator had examiners in place at U.S. Central FCU and WesCorp FCU. After taking those two corporate giants into conservatorship, NCUA filed lawsuits against the subprime lenders and Wall Street banks that packaged the loans into mortgage-backed securities bought by the corporates.
“Indeed, NCUA had been monitoring U.S. Central and WesCorp all along,” argued the Nomura lawyers in a brief submitted to the U.S. Court of Appeals for the Tenth Circuit, which is reviewing whether NCUA waited too long as many as six years after the MBS were bought by the corporates to file suit.
The Wall Street entities have asked the appeals court to dismiss most of NCUA’s claims on the grounds they were brought after the statute of limitations had expired on securities claims.
NCUA claims it had to wait until after taking the two corporates under conservatorship in March 2009 before it could get into their books to know whether the MBS were faulty, as alleged. NCUA says the 1989 S&L Bailout law gave banking regulators, including NCUA, the ability to extend the statute of limitations until after the federal agency got into the books of a failed bank or credit union through conservatorship.
But Nomura, which is being sued along with RBS Securities, which packaged Nomura’s subprime mortgages into MBS, noted for years NCUA had on-site examiners at U.S. Central and WesCorp who sat in on investment committee and asset/liability management committee meetings and had intimate knowledge of the investments being purchased at the two corporates. In addition, NCUA’s Office of Corporate CUs had significant powers to examine and review corporate investments. “In light of NCUA’s significant investigatory resources, this Court should reject NCUA’s suggestion that it is relieved of [the legal filing deadline for bringing suit],” argue the Nomura lawyers.
Nomura is among more than two dozen defendants in the 10 NCUA suits that have targeted both subprime lenders and Wall Street banks that underwrote the MBS.
Other subprime lenders named as defendants in NCUA’s suits include American Home Mortgage, IndyMac, Fremont Mortgage, GS (Goldman Sachs) Mortgage, Residential Accredit Loans, Residential Funding Mortgage, Novastar Mortgage, and Wachovia Mortgage, among others.
NCUA also is suing Goldman Sachs, RBS Securities, UBS Securities, Credit Suisse, Barclay’s Capital, Wells Fargo’s Wachovia Capital, and JP Morgan Chase, as well as two defunct investment banks subsequently acquired by JP Morgan, Bear Stearns and Washington Mutual.
Nomura argued that NCUA’s claim that as a federal agency the S&L Bailout law gives it special privilege to extend the statute of limitations on the MBS claims is contradicted by NCUA’s recent correspondence to congressional investigators. In those correspondence NCUA said it was able to hire an outside law firm on a contingency basis to represent it in the corporate cases in contravention of a ban on contingency agreements by federal agencies because as the liquidating agent for the corporates NCUA is acting on behalf of the corporates as a private entity and not as a government agency.
“In its brief,” said the Nomura lawyers, “NCUA provides further proof that it is not acting as the government’ in this case: it defends its retention of private counsel on a contingency fee basis which government agencies may not do under Executive Order No. 13,433 by asserting that [the law] provides NCUA with the powers of a private credit union when it acts as the liquidating agent.”
“NCUA thus admits it is acting as a private litigant here which means ambiguities are not to be construed in its favor.”
