Review of How the Corporate System Collapsed Is What's Needed
Thank you for your reporting on "Perlitsh: WesCorp Suit Was a Hobson's Choice"[March 17, page 6].
Stuart Perlitsh is wrong. He didn't face a Hobson's choice. He had plenty of other options rather than to file suit against the WesCorp directors. Perlitsh was a member of WesCorp. The same investment expertise that now allows him to talk about irresponsibly risky investments failed him as a member of WesCorp. He never once raised his voice about risky investments before the collapse. And I should add, neither did I nor any of the NCUA examiners, CPAs or any of the other members. We all had our chance. WesCorp's investments were no secret. They were certainly no secret to the NCUA or to the CPAs that examined WesCorp and never questioned the audited financial statements or the call reports.
WesCorp held open ALCO meetings and often went on the road to present their investment results to boards of directors. How often did Perlitsh attend ALCO meetings or ask WesCorp to come to his board meeting? I'm not blaming Perlitsh for being negligent. But my point is that he is blaming others for a failure that no one saw coming. By Perlitsh's logic, we are all negligent. And maybe on that point he is right.
I don't know what kind of research Perlitsh conducted before filing his lawsuit. I think he is suing the victim rather than the perpetrator. He apparently never considered that the rating agencies that rated WesCorp's investments AAA and AA may be culpable. He never considered whether the investment banks that packaged these investments might be culpable. Did he ever consider whether the CPA firm was culpable for opining that WesCorp's financial statements were fairly stated even though they gave no hint of huge investment losses? How about his partner in the lawsuit, the NCUA? Were they telling the members that there was a great deal of risky investments?
Who does Perlitsh think will pay if he wins his lawsuit? The lawsuit will take money from credit union volunteers. The NCUA has, in another of their many unintended consequences, thrown the entire volunteer system of credit unions under the bus. Bob Fenner has opined that the WesCorp board of directors has no indemnity. What does that mean? It means that all of our volunteers who claim indemnity under a board resolution (that is most of our volunteers) have no indemnity. That means whenever the NCUA comes in and takes over a credit union that any board member loses his indemnity and has to dig into his own pockets to defend himself. As Joe McCarthy would tell you, you are guilty (Red) until proven innocent.
Our volunteers are now exposed to personal liability for doing their job. Many of the WesCorp directors are now paying for their legal defense out of their own pockets. It's wrong. I am surprised that CUNA and the leagues have not risen to the defense of this keystone of the credit union volunteer system. If our directors do not have indemnity, then who will serve? The entire credit union system depends on volunteers. The quid pro quo at WesCorp was that volunteers who followed the reasonable man rule would have indemnity. The NCUA revoked that agreement, and I believe they are wrong and that the credit union system should fight to restore the volunteers' indemnity.
I would ask Perlitsh if he ever picked up the phone and asked any of the WesCorp directors what happened? He might be surprised to find out that they acted responsibly and diligently. At the last meeting with the NCUA, one of the directors asked, "What could we have done differently?" The answer at that time from NCUA examiners was "Nothing."
I feel strongly there should be a full and complete review of the causes of the corporate system collapse. A lawsuit is not the best way. It only enriches the lawyers and maybe six credit unions. The whole system collapsed-not just WesCorp and US Central. I have proposed a different choice. I have proposed a "truth commission" in which all those involved in the corporate system collapse-board members, supervisory committee members, examiners, regulators, CPAs, third-party advisers and members-all can tell their version of what happened. The truth commission would not seek to fix blame but rather to find out the causes and prevent another disaster. That is far better than making new rules before anyone knows what caused the problem.
I believe the main cause of the corporate system collapse lies outside the credit union system.
Perlitsh may not believe this, but had WesCorp invested in junk bonds rather than AAA mortgage-backed securities, they would have taken smaller losses. It is ironic that the rules intended to limit WesCorp to the safest investments, caused WesCorp to concentrate investments in the one segment that was cratered by the financial crisis. The bad actors that gamed the system are outside the corporate credit union system. They will again escape with their millions, while Perlitsh extracts his pound of flesh from the unpaid and now unindemnified volunteers at WesCorp. The problem I believe is that the entire system that produced these securities was broken and the corporates were not the only ones who were hurt. Many of the nation's largest banks, pension funds, insurance companies and others had large portfolios of the same investments. No one is holding the rating agencies, investment banks, mortgage brokers and all the others in the production chain responsible.
Perlitsh has other choices. He should take them. Otherwise the unintended consequences of this lawsuit will end up destroying the system that we all care so much about.
SAFE Credit Union
North Highlands, Calif.