A brokerage firm has repurchased the long-maturity CD it had sold to a credit union that apparently violated regulations by making the purchase.
California-based San Clemente Financial Group sold the 15-year zero coupon certificate of deposit on June 21 for a loss of $4,500, said Cooke Christopher, a senior manager and trader at the company.
In December 1993, the broker sold the certificate to Clarksburg, W. Va.-based United Hospital Center Federal Credit Union. The credit union invested $60,013 in principal.
Federal credit unions are prohibited from investing in zero coupons with a maturity beyond 10 years.
Mr. Christopher said the firm believed it had sold the certificate to a hospital, not a credit union. He provided American Banker with offering papers and a contract -- which credit union officials had signed -- that identified the buyer as a hospital, not a credit union.
"They never disclosed to us they were a federal credit union," Mr. Christopher said. "We never would have sold it to them if we had known they were a credit union."
After the firm became aware of the problem, it tried to find another buyer, he said.
The National Credit Union Administration began an investigation of San Clemente.
"We are continuing to look into San Clemente in regard to their dealings with credit unions," said NCUA Congressional Liaison John Zimmerman.
Credit Union officials were unavailable for comment.