ALEXANDRIA, Va. (9/25/12)--The National Credit Union Administration (NCUA) Tuesday filed its seventh lawsuit against Wall Street investment firms--this time against Barclay's Capital Inc.--over investment losses that contributed to the failure of U.S. Central FCU and Western Corporate FCU.
NCUA's suit, filed in the U.S. District Court in Kansas, alleges Barclay's violated federal and state securities laws through misrepresentations made in the sale of mortgage-backed securities to U.S. Central and WesCorp. Barclay's is the U.S. subsidiary of the British financial services firm.
NCUA alleges that the price paid for the securities sold by Barclay's exceeded $55 million.
"Trust and accountability are two cornerstones of our financial system," said NCUA Board Chairman Debbie Matz in an NCUA press release. "As clearly outlined in our complaint, Barclay's violated that trust by issuing faulty disclosures on securities underwritten by the firm. As a result, two corporate credit unions collapsed, and the entire credit union industry experienced a crisis.
"Since then, NCUA has successfully worked to restore stability to the credit union system. Now we are working to hold Barclay's, and other responsible parties, accountable for their actions," she added.
As in the other six lawsuits, NCUA's complaint alleges Barclay's made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporates. It also alleges systemic disregard of the underwriting guidelines stated in the offering documents. The misrepresentations caused U.S. Central and WesCorp to believe the risk of loss was minimal, when in fact the risk was substantial.
NCUA has filed previous lawsuits against J.P. Morgan Securities LLC, RBS Securities, Goldman Sachs, Wachovia, and UBS Securities. The cases are working their way through court. Earlier this month a federal judge in Los Angeles said NCUA's lawsuit against Goldman Sachs can proceed (News Now Sept. 10), and in July a U.S. District Judge in Kansas ruled that the suit against RBS Securities Inc. and Wachovia Capital Markets Inc. could proceed (News Now July 27).
The agency has already settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities and HSBC. It is the first federal regulatory agency for depository institutions to recover losses from investments in faulty securities on behalf of failed institutions, NCUA said.
As liquidating agent for the two corporates, NCUA said, it had a statutory duty to seek recoveries from responsible parties to minimize the cost of any failure to its share insurance funds and the credit union industry. Recoveries from these seven additional legal actions would further reduce the total losses resulting from the failure of five corporate credit unions.
NCUA explained that losses from those failures are paid from the Temporary Corporate Credit Union Stabilization Fund, and expenditures from this fund must be repaid through assessments against all federally insured credit unions. Any recoveries would help to reduce the amount of future assessments on credit unions, said NCUA.
The latest complaint filed is on NCUA's website. To access it, use the link.