WICHITA, Kan. (2/6/12)--A federal judge in Kansas has ordered the National Credit Union Administration (NCUA) to show cause why NCUA's lawsuit against Wachovia Capital Markets LLC (now known as Wells Fargo Securities LLC) over residential mortgage-backed securities (RMBS) sold to corporate credit unions should not be dismissed for lack of prosecution.
The Jan. 31 order by U.S. District Judge Julie A. Robinson of the U.S. District Court for the District of Kansas, Wichita, said NCUA had filed the case on Nov. 28, but there were no filings or court docket entries since the initial filing. It directed NCUA to show good cause in writing to the court by Feb. 26. The Kansas court has jurisdiction because U.S. Central FCU, one of the corporates that bought the RMBS, was headquartered in Lenexa, Kan.
To date, NCUA has not filed anything with the court confirming whether the complaint has been legally served on Wachovia.In the complaint filed in court, NCUA said the underwriting documents on the securities sold by Wachovia to U.S. Central FCU and California-based Western Corporate FCU contained untrue statements of material fact and omitted to state material facts related to the RMBSs sold. The NCUA's complaint pointed out it is not alleging fraud in the case.
The complaint alleged that originators of the RMBS had systematically abandoned the stated underwriting guidelines, resulting in riskier RMBS that the corporates would not have bought, had they known, said NCUA. Wachovia representatives sold about $100 million in RMBS to the two corporates in 2006, and U.S. Central purchased approximately $80 million in RMBS underwritten by Wachovia, according to court documents.
NCUA placed U.S. Central and WesCorp into conservatorship on March 20, 2009. On Oct. 1, 2010, the corporates were placed into involuntary liquidation. NCUA is suing as the liquidating agency to recoup some of the losses.
The order came a day after a tentative ruling about the possible dismissal of a similar lawsuit the agency had filed against RBS Securities Inc. in the U.S. District Court for the Central District of California, Western division. A final ruling was expected late last week.
NCUA has sued several entities for a total of $2 billion related to the sale of RMBS to corporate credit unions, including RBS Securities, JP Morgan Chase, and Goldman Sachs. NCUA also settled with Citigroup for $20.5 million and Deutsche Bank Securities for $145 million, without filing lawsuits. Neither bank admitted any fault in the settlements (News Now Dec. 20 and Feb. 1).