According to court documents, the $2 billion retail corporate alleges that before the conservatorship, U.S. Central officers, directors and the Overland Park, Kan.-based accounting firm RubinBrown violated the Securities Exchange Act of 1934, SEC rules and the Kansas and Alabama state laws.
The suit hinges on Corporate America's December 2008 purchase of U.S. Central PIC II. The Birmingham, Ala.-based corporate claims officers and volunteers "breached fiduciary duties to plaintiff in their investment of funds invested in [U.S. Central], concealed their losses from plaintiff and obtained a valuation report from RubinBrown LLP that grossly overstated U.S. Central's securities."
U.S. Central told Corporate America back in October 2008 that its third-quarter investment impairments would not exceed $150 million, the complaint charges. However, upon receiving its quarterly investment valuation report in January 2009, the wholesale corporate was required to record a $1.2 billion other-than-temporary impairment, and the NCUA was forced into a $1 billion bailout.
The suit alleges the defendants "forced and misled" Corporate America into purchasing the at-risk capital by concealing U.S. Central's subprime mortgage exposure and misleading the retail corporate as to the value of the PIC II, which was depleted due to investment losses.
Corporate America alleges that, according to Deloitte & Touche's 2008 annual audit report, "defendants had modified U.S. Central's accounting policies in a manner designed to conceal the $1.2 billion in losses" and that U.S. Central slipped into negative net economic value status in early 2008, neither of which were disclosed to Corporate America.
Furthermore, the plaintiff alleges that U.S. Central had counted on selling its impaired investments to the U.S. Treasury Department through the Troubled Assets Relief Program, which never materialized as an option for credit unions.
"While [U.S. Central management and volunteers] were seeking out TARP funds in a last ditch effort to forestall conservatorship, they and defendant RubinBrown, LLP were holding out the PIC II securities as valuable investments for the plaintiff," the complain states.
The suit seeks $9 million in damages, the value of Corporate America's PIC II investment.
The suit is a work in progress according to footnotes on page one because some of the documents on which Corporate America's claims are based are not in the plaintiff's possession and is held by U.S. Central and the NCUA.
"Portions of the plaintiff's allegations are made by necessity on information and belief," the complaint states. "At such time as the plaintiff has had the opportunity to conduct discovery, plaintiff will, to the extent necessary and appropriate, amend this complaint to conform to the evidence."
Defendants listed on the lawsuit include Members United Corporate FCU President/CEO Joseph Herbst, West Virginia Corporate FCU President/CEO Charlie Thomas, First Carolina Corporate CU President/CEO David Brehmer, dismissed Western Corporate FCU President/CEO Robert Siravo, California Credit Union League CEO Bill Cheney, Kansas Corporate Credit Union President/CEO Larry Eisenhauer, CUNA Executive Vice President and Chief Operating Officer John Franklin, Virginia Corporate FCU President/CEO James Hansen, Georgia Central CU President/CEO Greg Moore, dismissed U.S. Central CEO Francis Lee, dismissed U.S. Central Chief Investment Officer David Dickens, U.S. Central Chief Financial Officer Kathy Brick and RubinBrown LLP.
Corporate America President/CEO Thomas Bonds declined to comment on the suit, citing the advice of his legal counsel.