ALEXANDRIA, Va. (2/12/13)--The National Credit Union Administration's use of law firms that operate on a "contingency basis" to sue banks does not violate an executive order that prohibits such arrangements, the NCUA's Office of the Inspector General wrote in a recent letter to a house member.
NCUA Inspector General William DeSarno was responding to an October letter from Rep. Darrell Issa (R-Calif.). Issa last year asked the NCUA OIG whether the agency's payment arrangements with outside counsel violates a 2007 executive order signed by then-President George W. Bush.
DeSarno said the executive order does not apply when the NCUA is serving as the conservator or liquidating agent of a federally insured credit union. The NCUA as conservator "steps into the shoes'" of the credit union and is no longer functioning as a government agency," DeSarno wrote. "The conservator, therefore, has the same authority to hire outside counsel on a contingency fee basis that the credit union possessed before the NCUA was appointed conservator," he added.
Credit Union National Association Deputy General Counsel Mary Dunn said CUNA agrees with the OIG's basic analysis.
The NCUA has paid two firms, Kellogg Huber Hansen Todd Evans & Figel PLLC and Korein Tillery LLC, on a contingency arrangement basis to pursue legal action against several Wall Street firms. The agency alleges the firms violated federal and state securities laws when they sold securities to now-defunct corporate credit unions. J.P. Morgan Securities, RBS Securities, Goldman Sachs and Wachovia are among the firms the agency has taken to court. The agency has settled with Citigroup, Deutsche Bank Securities, and HSBC, avoiding the cost of litigation and bringing in more than $170 million in funds that were lost due to the corporate credit union investments.
Funds recovered through these legal actions will be used to help reduce the amount of future corporate stabilization assessments on credit unions, according to the NCUA.
The NCUA payment arrangement with the outside firms would provide the firms with one-fourth of any judgment they secure for the agency, and the total payment could be hundreds of millions of dollars, The Wall Street Journal (Oct . 24) reported.
Issa claimed the payment arrangement could harm credit union members by diverting funds that should go to paying off corporate credit union stabilization costs. However, the NCUA in an October statement noted that these suits benefit credit unions by reducing costs of pursuing the recoveries.
For the full NCUA letter, use the resource link.