Perlitsh: WesCorp Suit Was a Hobson's Choice
ARLINGTON, Va. -- Even though his credit union is the lead plaintiff against former and current directors and employees of Western Corporate Federal Credit Union, Stuart Perlitsh said he hasn't been pressured by or felt the wrath of the NCUA "yet."
The president/CEO of Glendale Schools FCU said because his institution has a "very good" CAMEL rating, which he can't reveal, "I think I can be a little more outspoken."
Perlish, who filed the suit last December, discussed the litigation and related subjects at last Monday's dinner meeting of the Metropolitan Area Credit Union Management Association in a session moderated by Credit Union Times Editor-in-Chief Sarah Snell Cooke.
Perlitsh said it is "a little disconcerting and upsetting that it has come to this," but noted that he and the leaders of the six other credit unions didn't feel they had any other choice. He said that the investment practices at WesCorp resembled a "wildly irresponsible Wall Street gambling spree."
The suit, which focuses on WesCorp's 2008 and early 2009 investment losses, alleges that the corporate's "irresponsibly risky" investment program abandoned the "mission, purpose and goals of the credit union system." The investment losses depleted $1.25 billion in member capital.
Perlitsh said that while there is now a list of other credit unions that would like to join the litigation, initially he had difficulty recruiting plaintiffs because many executives were "drinking the Kool-Aid and singing Kumbaya."
He said that in the discovery process they had learned that WesCorp had invested extensively in unsecured credit card debt and in risky mortgage portfolios.
He said the portions of the NCUA's proposed rule for corporate credit unions on the composition of the boards wouldn't necessarily prevent future problems. He noted that the proposal to require that only CEOs and chief financial officers be allowed to stand for election to the board doesn't do enough to increase the likelihood that the most qualified people will be on the board.
Instead, he suggested that the board member be employed at a CAMEL 1 or 2 credit union and that the credit union have a double-digit investment in the corporate. He said that half of WesCorp's board members at the time of its conservatorship were executives at credit unions with a negative ROA.
Perlitsh said although his credit union has pulled out of the corporates and is using the Federal Reserve for many of the check processing and related functions, there is a potential role for coprorates in the future. But the system would be more effective if corporates kept two balance sheets, one for investments and one for settlements.