BIRMINGHAM, Ala. – Corporate America CU, which is suing officers and directors of U.S. Central FCU over an ill-fated 2008 conversion of corporate capital that was wiped out soon after, has subpoenaed the records of U.S. Central’s auditor, BDO Seidman.
The case has taken on added meaning in recent weeks because it could entail recovery of millions of dollars from insurers for the officers and directors and help the surviving corporates to recapitalize in the wake of the failures of U.S. Central and four of its corporate members.
Corporate America claims in its suit that it and the other U.S. Central members were misled when U.S. Central converted $450 million of temporary capital into permanent capital in the fall of 2008, just before soaring losses at U.S. Central erased all of the capital.
In its subpoena, Corporate America has asked BDO Seidman for all work papers, correspondence, research, spreadsheets, drafts and investment valuations it provided for U.S. Central in 2008. A representative of BDO Seidman said yesterday the company does not comment on pending litigation.
The Alabama corporate also has 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.
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.
Both U.S. Central and NCUA, which approved the capital move, asserted 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 names as defendants Francis Lee, president of U.S. Central, Kathy Brick, chief financial officer, and David Dickens, head of asset liability management, as well as the corporate’s nine directors: chairman Joseph Herbst, Bob Siravo, Bill Cheney, Charles Thomas, Greg Moore, James Hansen, David Brehmer, Larry Eisenhauer and CUNA’s John Franklin, who represented CUNA’s president and CEO on the U.S. Central Board. Also named as defendant was RubinBrown LLP, a Denver-based accounting firm which provided a positive opinion on the $450 million offering.
