BIRMINGHAM, Ala. – Lawyers for former executives and directors of U.S. Central FCU are seeking to shield their clients from the potential for million dollar judgments, telling the federal judge here that since the one-time $52 billion corporate was taken over by NCUA only NCUA has the legal authority to file suit against them.
The strategy is similar to one NCUA has adopted in other suits against some of the same individuals, all key players in the corporate credit union meltdown, which was highlighted by last year’s NCUA takeover of U.S. Central and WesCorp FCU.
In their argument to the court, lawyers for U.S. Central figures claim Corporate America CU, an Alabama corporate that lost millions of dollars in the failure of U.S. Central, does not have standing to sue their clients because its claim is "derivative," and thus can only be brought by representatives of the company – that being NCUA since last year’s conservatorship, according to the defendants.
NCUA has made similar arguments in recent suits brought against both U.S. Central and WesCorp.
Defendants in the suit include: Francis Lee, former CEO of U.S. Central; Joseph Herbst, former chairman of the board of U.S. Central and currently 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 currently president of the California CU League, 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 now 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 he individuals were dismissed from the 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.
The suit revolves around the December 2009 conversion by the U.S. Central board of $450 million of semi-permanent capital known as paid-in-capital to permanent capital, as losses were mounting at U.S. Central. Corporate America claims it and U.S. Central’s 25 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.
Subsequently, all of the $450 million and as much as $3 billion more of the corporates’ capital was wiped out by losses at U.S. Central, which have amounted to some $6 billion for 2008 and the first three quarters of 2009.
The U.S. Central figures claim that Corporate America’s assertion that the secret conversion of PIC violated federal securities law must be dismissed because the PIC did not qualify as a security.
