ALEXANDRIA, Va. - The National Credit Union Administration has retained the law firm Storch & Brenner to investigate third parties whose actions might have caused the failure of Capital Corporate Federal Credit Union.
Storch & Brenner, based in Washington, was selected July 28 because of its experience in investigating securities claims for the Federal Deposit Insurance Corp., said NCUA trial attorney Steven Widerman.
"We're conducting a comprehensive investigation of possible claims against third parties whose conduct may have led to the demise of Cap Corp," he said. Targets of the investigation include broker-dealers, auditors, and former officers and directors.
"Depending on what the report says, the agency will decide on whether and how to pursue claims," he said. Storch & Brenner is expected to submit its findings to the agency in four to six months.
Storch & Brenner, which the agency selected from among 24 competing firms, will be paid $125 to $190 per hour, depending on the lawyer, Mr. Widerman said. The agency has set aside $1 million from the Cap Corp liquidation to cover costs of the investigation and any litigation.
The demise of Cap Corp ate up $37 million of the institution's capital and about $23 million of capital deposits by Cap Corp's member credit unions.
If the agency pursues claims, it could have a hard time, said Steven Bisker, a former NCUA attorney who now works with credit unions.
"It could be tough sledding if you have a defendant that can afford to defend itself," the Alexandria-based attorney said.
Sources expect the broker Alex. Brown & Sons Inc. to be a major focus of the investigation, because it sold Cap Corp the bulk of its collateralized mortgage obligations.
Further, Howard L. Schwartz, the broker-dealer who worked the most closely with Cap Corp, was once the Lanham, Md., corporate's investment officer.
Mr. Widerman would not comment on the relationship between Brown and Cap Corp, but press reports have said the NCUA already has referred the matter to the Securities Exchange Commission.
One of Storch & Brenner's selling points was its experience in customer- suitability claims regarding securities, Mr. Widerman said.
In an interview, Alex. Brown chairman A.B. "Buzzy" Krongard pointed out that NCUA Chairman Norman E. D'Amours told the Senate Banking Committee in February that Cap Corp had failed because of poor management and lax oversight.
"Alex. Brown vigorously and vehemently denies any wrongdoing in this matter," he said. The firm is "in disbelief," he added, that the agency would attribute its "own missteps ... to wrongdoing on our part."
If the NCUA decided to seek claims after the investigation, it could run into some dead ends, Mr. Bisker said. Going after officers and directors could be fruitless.
"Unless you have a defendant with deep pockets, a judgment makes good wallpaper but little else," he said.
J. Clayton Brooke, former chief executive of Cap Corp, could not be located for comment.
Another target of investigation is Cap Corp's former auditor, Deloitte & Touche. Laura Fraser, a spokeswoman for the Big Six firm, declined to comment, citing a confidentiality agreement with its former client.
