The National Credit Union Administration late this week filed suit against UBS Securities claiming securities fraud in the sale of $1.1 billion of MBS sold to U.S. Central Federal Credit Union, and WesCorp Federal Credit Union.
The suit is the latest of a half-dozen brought by NCUA for the 2009 failures of the two corporate CU giants, which are projected to cost the agency and the credit union system up to $12 billion to resolve.
NCUA does not specify damages in the latest suit, which was filed in U.S. District Court in Kansas.
“The strength of our entire financial system relies on trust and accountability,” said NCUA Chairman Debbie Matz. “As our complaint makes clear, UBS Securities violated this trust, which contributed to the collapse of two corporate credit unions and the resulting crisis in the credit union industry. NCUA has worked to restore stability to the credit union system. Now we intend to hold UBS Securities, as well as other responsible parties, accountable.”
NCUA’s suit alleges UBS Securities made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions.
The complaint also alleges systemic disregard of the underwriting guidelines stated in the offering documents. These 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 similar MBS-related suits against JPMorgan Chase, RBS Securities, Goldman Sachs Co., and Wells Fargo’s Wachovia Securities, and settled charges out of court against Deutsche Bank, HSBC and Citibank.
U.S. Central and WesCorp were two of five corporate credit unions (credit unions for credit unions) that failed due to large investments in risky residential mortgage-backed securities.