Goldman Sachs Latest NCUA Suit Target
The NCUA sued investment bank Goldman Sachs last week, seeking damages of more than $491 million and alleging misrepresentations by the firm when selling mortgage-backed securities to U.S Central and Western Corporate credit unions.
The agency, which filed the suit in federal court in Los Angeles on Aug. 9, alleges that the misrepresentations caused U.S. Central and WesCorp to believe the risk of loss associated with the investment was minimal.
In the complaint, which doesn’t allege fraud, the agency contends that Goldman Sachs is liable for “material untrue statements and omissions of fact.”
These misrepresentations stemmed from the fact that “a material percentage of the borrowers whose mortgages comprised the RMBS [residential mortgage-backed securities] were all but certain to become delinquent or default shortly after origination. As a result the RMBS were destined from inception to perform poorly.”
At issue were 22 mortgage-backed securities that WesCorp and US Central purchased in 2006 and 2007. The decline in the value of the securities caused the agency to conserve the two corporate credit unions on March 20, 2009.
The lawsuit against Goldman Sachs is the fourth suit stemming from the collapse of five corporate credit unions filed by the NCUA. The agency is seeking total damages of almost $2 billion.
“NCUA continues to carry out our responsibility to do everything reasonable in our power to seek maximum recoveries,” NCUA Chairman Debbie Matz said in a statement. “Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.”
On July 18, the NCUA sued RBS Securities for $685 million in Los Angeles alleging that that firm misled WesCorp when it sold it mortgage-backed securities that led to its ultimate collapse.
In June, the NCUA sued RBS Securities for $565 million in damages, and a lawsuit filed against J.P. Morgan securities, the agency seeks $278 million in damages.
Both those lawsuits were filed on June 20 in Kansas City. In the suit against J.P. Morgan, the NCUA alleged that 49.6% of the mortgage collateral of the RMBS sold to the corporate credit unions were in delinquency, bankruptcy, foreclosure or was real estate owned.
The collapse of five corporate credit unions caused the NCUA to design and implement a rescue plan that it estimates could cost credit unions approximately $20 billion. It involved borrowing money from the Treasury Department to set up the Temporary Corporate Credit Union Stabilization Fund.
Natural person credit unions are paying for the rescue through assessments that are scheduled to continue through 2020. For this year, the agency has recommended that credit unions set aside between 20 and 25 basis points for 2011 assessments.
The agency is scheduled to announce this year’s assessment will be at a special NCUA Board meeting on August 29.