WASHINGTON (8/16/10)--The ordered liquidation of failed Kappa Alpha Psi FCU was neither “arbitrary” nor “capricious,” and did not represent an “abuse of discretion,” the National Credit Union Administration (NCUA) said in court papers filed on Friday. The NCUA in its statement filed with the U.S. District Court for the District of Columbia added that the potential liquidation of the approximately $750,000-in-asset credit union, which was ordered on Aug. 3, was supported by the “administrative record” created by NCUA. The credit union attempted to obtain an injunction against the NCUA following the announcement of the liquidation, alleging that a "significant drop" in its net worth ratio between 2007 and 2009 "was attributable to 'full accrual' accounting” and the costs created by the NCUA’s assessments to replenish its Temporary Corporate Credit Union Stabilization Fund. John McKechnie, director of public and congressional affairs at NCUA, said early last week that the credit union was involuntarily liquidated due to its inability to “generate consistent operational profits; build its net worth position; maintain its records in a sound manner; grant quality loans; or adequately collect on delinquent loans." "Newly founded credit unions have 10 years to reach an adequate capital level, which is a 6% net worth ratio; however, Kappa Alpha Psi FCU has never been able to show it can reach that level of capitalization," McKechnie told News Now. The community development credit union, which was established to serve members of the Kappa Alpha Psi fraternity and affiliated organizations, reported a net worth ratio of 0.58% as of Dec. 31. In its statement, the NCUA noted that while Kappa Alpha Psi said that it was liquidated by a “surprise” order, current credit union regulations do not require the NCUA to serve prior notice in situations where the credit union in question is “determined to be insolvent or bankrupt.” Further, the NCUA said that while the credit union claims that it’s net worth ratio had improved from 1.95% to 3.67% during the 2010 second quarter, “such a showing would not preclude liquidation under the applicable NCUA regulations.” The NCUA's filings dispute the net worth level reported on the credit union's second quarter call report, claiming that the credit union's board failed to properly accrue approximately $20,000 in data processing expenses. Kappa Alpha Psi will have until noon today to respond to the NCUA statement, and the NCUA will then need to reply by noon on Tuesday. A full hearing on the case is scheduled for Wednesday.