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NCUA sues securities firms to recover millions More suits could come

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ALEXANDRIA, Va. (6/21/11)—Seeking to recover millions of dollars from securities firms alleged to have violated federal and state securities laws, the National Credit Union Administration (NCUA) filed two lawsuit Monday charging misrepresentation in the sale of hundreds of securities, and has said more suits could come. The Credit Union National Association (CUNA) backed the NCUA action, having encouraged the agency to take “all reasonable actions” available to pursue effective restitution from securities firms who “share the culpability for the events that led to the corporate failures.” “While this is a very positive step and the agency should be commended for taking it, the fact is that a very tough road remains ahead. The institutions being sued by NCUA have significant resources to defend their actions, and will no doubt use those resources to the fullest extent,” CUNA President/CEO Bill Cheney remarked Monday. The NCUA took the legal action in its role as liquidating agent for five failed corporate credit unions. The suits filed Monday are against J.P. Morgan Securities, LLC, and RBS Securities, Inc. and involve damages in excess of $800 million. The NCUA said its officials also are discussing losses with a number of other sellers, issuers and underwriters and if they are unable to reach reasonable settlements on behalf of the liquidated credit unions with these additional parties, the agency will likely bring additional lawsuits. Those suits could bring the request for damages into the billions. The NCUA said the suits are intended to “recover losses from the purchase of securities that caused the failures” of the five, large wholesale credit unions. Those institutions are U.S. Central, Western Corporate, Southwest Corporate, Members United Corporate, and Constitution Corporate. “NCUA has a responsibility to do everything in our power to seek maximum recoveries from those involved in the issuing, underwriting and sale of the faulty securities that resulted in the failures of five of the largest wholesale credit unions. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions,” said NCUA Chairman Debbie Matz announcing the lawsuits. The NCUA’s suits claim the sellers, issuers and underwriters of the “questionable securities” made numerous material misrepresentations in the offering documents. “These misrepresentations caused the corporate credit unions that bought the notes to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial. The corporate credit unions invested in mortgage-backed securities that experienced dramatic, unprecedented declines in value, effectively rendering the institutions insolvent,” the NCUA said. The NCUA said any recoveries from these legal actions would reduce the total losses resulting from the failure of the five corporate credit unions and would help to reduce the amount of future corporate credit union stabilization fund assessments on credit unions. Use the resource link to see additional actions the NCUA has taken with the intention of mitigating losses to the credit union system from these corporate failures.

This week in Congress Hearings of interest to CUs

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WASHINGTON (6/21/11)--The U.S. House and Senate are in session this week and there are several hearings on the agenda of interest to credit unions. As noted last week in News Now, on Tuesday the Senate Banking Committee is scheduled to conduct a hearing on “Cybersecurity and Data Protection in the Financial Services Sector.” Kevin Streff, associate professor and director of the Center for Information Assurance at Dakota State University; Leigh Williams, president of BITS, and member of the Financial Services Roundtable; and Marc Rotenberg, president of the Electronic Privacy Information Center, are expected to testify. Also on Tuesday, a Senate Judiciary Committee hearing on "Cybersecurity: Evaluating the Administration's Proposals" is expected to hear testimony from Associate Deputy Attorney General James Baker; Acting Deputy Homeland Security Undersecretary Greg Schaffer of the National Protection and Programs Directorate; and Ari Schwartz, senior Internet policy adviser at the National Institute of Standards and Technology. This week's calendar also shows:
* On Wednesday, the House Small Business Committee is slated to study “The State of Small Business Access to Capital and Credit: The View From Secretary Geithner." As the title of the hearing suggests, U.S. Treasury Secretary Geithner is expected to testify. * Also on Wednesday, the House Financial Services Committee will hold a mark-up a number of bills, including: the Report on the Activity of the Committee on Financial Services for the 112th Congress; H.R.1082, the Small Business Capital Access and Job Preservation Act; and the Burdensome Data Collection Relief Act; * The House Oversight and Government Reform subcommittee on TARP, financial services and the bailout of public and private programs has scheduled a hearing titled “The Changing Role of the FDIC (Federal Deposit Insurance Corporation)." *On Thursday, the Senate Banking Committee will hold Part Two of a hearing on "Reauthorization of the National Flood Insurance Program"; * Also on Thursday, the House Appropriations Committee will markup the Fiscal Year 2012 Financial Services Appropriations Act.

CUNA backs prepay concept but urges key changes

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WASHINGTON (6/21/11)—Reaction from credit unions to the National Credit Union Administration’s (NCUA) voluntary corporate stabilization fund prepayment plan has been mixed, the Credit Union National Association (CUNA) noted in its June 20 comment letter, but CUNA endorsed the concept of prepaid assessments. The deadline for comments to the NCUA on the design of its voluntary prepayment plan ended yesterday. However, that is not the deadline for credit unions to inform the agency of whether or not it will participate, or to what extent. CUNA anticipates that now that the comment period has closed, the agency will take a few weeks to decide on a final plan, which they will announce to credit unions. Credit unions will likely have approximately 40 days after that announcement to tell NCUA whether or not they will commit any funds to the plan. In its comment letter CUNA wrote, “We believe there are several factors that have undermined greater support for the proposal.” Among those factors, CUNA said, is the opinion of some credit unions that the NCUA should have developed such a proposal sooner to avoid having to make decisions on a rushed basis. In addition, CUNA added, there are those credit union officials who would like to pay all remaining assessments now in one year and those who want to spread out those assessments over many years. Further the proposal is complex and not quickly understood, CUNA noted, and said that complexity is an important issue since credit union officials are “very busy in this new era of heightened oversight and continued challenges created by the current economic environment.” “Underlying all these issues is a general feeling of skepticism stemming from the agency’s past communication about the corporate stabilization, its handling of some of the corporate credit unions prior to their conservatorship, examination issues, and overregulation,” CUNA said. Nonetheless, CUNA said it continue to supports the concept of prepaid assessments, and called the agency proposal “a sound and creative approach to address the legitimate needs of credit unions.” CUNA recommended that the NCUA increase the minimum participation threshold for its prepayment plan from $300 million to $1 billion because doing so would increase the amount of possible assessment reduction, thereby making the program more attractive for credit unions. That change, CUNA said, could reduce the amount of assessments charged in 2011 and 2012 to 12 or 13 basis points. CUNA also encouraged the NCUA to allow credit unions of any size to participate in the plan if they wish to do so. To read more on CUNA’s concerns with the prepayment plan, as well its recommendations to make the plan more appealing to credit unions, use the resource link below.

Inside Washington (06/20/2011)

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* ALEXANDRIA, Va. (6/21/11)--The National Credit Union Administration board has scheduled a special closed board meeting for Thursday at 1 p.m. (ET) to consider two supervisory activities. The agenda for the meeting is available online