Saying that the facts “'lay to rest any notions of chance and instead evince deliberate – indeed, malevolent – design,’’ the $3.1 billion Space Coast Credit Union on Tuesday sued Barclays and State Street Securities, accusing the firms of selling a collateralized debt obligation designed to fail, and caused the former Eastern Financial CU to lose millions of dollars.
Space Coast said a predecessor credit union, Eastern Financial bought $10 million of 'AA' rated notes issued by the Markov CDO at 94.2 cents on the dollar, and that the entire investment was lost. Eastern Financial CU later collapsed, the largest natural person credit failure to date. Space Coast CU, based in Melbourne, Fla., acquired Eastern Financial's assets when it took over the operations of the failed credit union.
In its suit filed in U.S. District Court in New York, Space Coast called the CDO “materially similar” to a CDO sold by Goldman Sachs. The Wall Street giant paid $550 million to settle SEC charges that it sold the securities and then bet against them.
Barclays designed the CDO and State Street co-wrote the offering documents and was the collateral manager, according to the lawsuit.
State Street spokeswoman Arlene Roberts told Reuters, “We deny the charges made in the complaint, and will vigorously defend ourselves against these allegations.’’
Barclays is underwriting the NCUA’s $30 billion offering of guaranteed notes funded by cash flows from corporate credit unions’ legacy assets.