The NCUA's recently filed amended complaint in its court battle with Siravo, et al., runs for 63 pages, but four words in bold on the front page sum up the document: Demand for Jury Trial.
In prior opinions, the presiding judge, George H. Wu of the Central District of California, had expressed doubt that NCUA could put together a credible case against the WesCorp outside directors. Wu implied he intended to dismiss those charges but he gave NCUA the opportunity to amend its complaint. (In those same opinions, Wu seemed set to proceed to trial against most of the WesCorp officers.)
This latest filing is intended to persuade Judge Wu to change his mind regarding the outside directors.
A key argument in the "Summary of Claims" is that if the WesCorp officers and directors "had imposed prudent concentration limits on its private label MBS...almost all of this loss [some $4.7 billion] could have been avoided."
The NCUA complaint continues: "The Officer Defendants and Director Defendants were negligent and grossly negligent and they breached their fiduciary duties."
NCUA adds that, by design, corporate credit unions are not tasked with profit maximization, but rather with delivering service to their members.
The complaint documents WesCorp's accelerating investments in mortgage-backed securities, and it then argues: "NCUA regulations required the Director Defendants to set reasonable and supportable concentration limits for limited liquidity investments." NCUA adds: "Under WesCorp's corporate policies, the Director Defendants were solely responsible for setting investment policies."
Sometime in the period of late 2006 and early 2007, NCUA alleges in the complaint, there were numerous "red flags" warning about the deteriorating quality of mortgages, and that this "red flag" required the outside directors to reconsider WesCorp's investment strategies. That apparently did not happen. Reads the complaint: "The Officer Defendants' and the Director Defendants' failure to control WesCorp's concentration of Option ARM loans proved fatal."
NCUA argues that the outside directors-in their alleged failure to monitor and supervise WesCorp's investments-"abdicated their responsibilities."
The complaint concludes: "As a result of the foregoing breaches of the duty of care...WesCorp suffered massive losses."
What intensifies interest in the case is that the WesCorp outside directors constitute something of a credit union all-star team: that includes CUNA's Bill Cheney, Robert Harvey (CEO of Seattle Metropolitan Credit Union), James Jordan (CEO of Schools Financial CU), Timothy Kramer (CEO of Keypoint CU), Robin Lentz (CEO of Cabrillo CU), John Merlo (CEO of Premier America CU), Gordon Dames (former CEO of Mountain America CU), Warren Nakamara (CEO of Honolulu Federal CU), Brian Osberg (CEO of Potelco United CU), David Rhamy (CEO of Silver State Schools CU) and Sharon Updike (CEO of Eagle Community Credit Union). All are named defendants in the NCUA filing.
The NCUA filing also details, over many pages, what it alleges is a pattern of misconduct by WesCorp's officers, namely Robert A. Siravo (WesCorp's former president/CEO), Todd M. Lane (former chief financial officer), Thomas E. Swedberg (former vice president) and Robert Burrell (former executive vice president).
How Judge Wu will respond is uncertain. Court observers say he had been plain in his disbelief that NCUA could assemble a credible case against the outside directors, and now he has many pages of filings to read that may-or may not-change his mind.