Wall Street Suits Undermine NCUAs WesCorp Claims
LOS ANGELES – Lawyers for former executives and directors of WesCorp FCU told a federal court here yesterday that NCUA’s new suits claiming JP Morgan and RBS Securities misrepresented the sale of risky mortgage-backed securities to the one-time $34 billion corporate should disprove the agency’s claims of negligence in a multi-billion federal lawsuit brought against them.
The new claims against the Wall Street banks, assert the WesCorp figures, “are admissions that undercut and render implausible the NCUA’s allegations in this case in that the (WesCorp figures) acted “clearly unreasonably” under the circumstances known to them at the time.”
The WesCorp defendants note that the suit filed this week by NCUA against JP Morgan Securities alleges that Wall Street firms “misled certain corporate credit unions–including WesCorp–into purchasing AAA-rated residential mortgage-backed securities by making misrepresentations and omissions in registration statements, prospectuses and prospectus supplements.”
The WesCorp figures note specifically that NCUA claims the Wall Street issuers and underwriters misrepresented to WesCorp the quality of the mortgages in the pools of MBS and the credit enhancement against financial loss. “The NCUA also alleges that WesCorp was “not aware of the untrue statements or omissions” or “did not know of these untruths or omissions.”
The defendants claim that NCUA’s press release touting the suits clearly contradicts the agency’s claims in the WesCorp case by highlighting how difficult it was at the time to foresee problems with MBS. The press release states that the misrepresentations of the Wall Street firms “caused the corporate credit unions that bought the notes to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial.”
NCUA claims in its suit that the executives and directors of the failed corporate were negligent in loading up WesCorp with risky private label MBS in order to chase the higher yields the securities were paying. The directors include CEOs of some of the biggest credit unions in the country, including CUNA President Bill Cheney, who served on the WesCorp board as CEO of Xerox FCU (now Xceed FCU), Robert Harvey, then CEO of Seattle Metropolitan CU; James Jordan, Schools Financial CU; Timothy Kramer, Keypoint CU; Robin Lentz, Cabrillo CU; John Merlo, Premier America CU; Gordon Dames, former CEO of Mountain America CU; Warren Nakumara, Honolulu FCU; Brian Osberg, Potelco United CU; David Rhamy, Silver State Schools CU and Sharon Updike, Eagle Community CU.
Also named as defendants are: Robert Siravo, former CEO of WesCorp, Todd Lane, who was its chief financial officer, Robert Burrell, former chief investment officer, Timothy Sidley, chief risk officer; and Thomas Swedberg, head of human resources.
Facing mounting losses estimated at as much as $7 billion, WesCorp was taken over by NCUA in March 2009 and is one of five failed corporates–along with U.S. Central FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU–that have caused a massive bailout scheme by NCUA that is projected to cost the credit union industry from $15 billion to $20 billion to resolve.