Will NCUA Honor Indemnification?

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WEST PALM BEACH, Fla.-One analyst with knowledge of the situation related to WesCorp and the potential liability of its former board members said insurance coverage for legal fees is just one issue.

Another issue, the source told Credit Union Journal, is that San Dimas, Calif.-based WesCorp itself had previously adopted a policy of indemnification for its directors in the case of litigation, such as that related to the current case. NCUA, which is acting as the conservator, has taken the position that it will decide at the conclusion of litigation whether it will honor the commitment that had been made to directors by WesCorp.

NCUA, the source noted, also currently has rulemaking proceedings pending that would prohibit CUs from indemnifying their directors or officers when the plaintiff in the case is NCUA or another regulator.

In the meantime, the source noted, those board members aren't likely taking much reassurance in the current scenario. "There is not too much comfort for people who may have to spend six figures in legal fees apiece to get through the case, and some may not be in the position to do that," the source said. "So you've got to ask is NCUA trying to stack the deck."

Moving forward, will the WesCorp case discourage others from serving on a corporate board? It's likely, the source said, if it appears "you have to put your entire life savings at risk if you have a disagreement with NCUA."

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