Space Coast Goes After Wall St.
The $3 billion Space Coast Credit Union recently filed suit against Merrill Lynch, Wachovia Capital, Barclays Capital, Lehman Brothers’ former CEO Richard Fuld and major U.S. credit rating agencies, Standard & Poor’s and Moody’s, alleging that the defendants caused more than $100 million in losses to Eastern Financial Florida Credit Union.
Space Coast in Melbourne, Fla., acquired the financially troubled Eastern Financial in 2009 after it was placed in conservatorship by the NCUA and issued a cease and desist order for questionable loan practices. In large part, the mortgage securities’ losses resulted in the collapse of Eastern Financial and the loss of its independent strength, creating the need for a merger partner, said Space Coast President/CEO Doug Samuels.
Space Coast’s complaint identifies several ways that the defendants allegedly manipulated the credit ratings, including making out-of-model or manual adjustments to the rating agencies’ credit rating models to obtain better ratings.
Space Coast said the defendants allegedly knew that the credit rating models rested on fraudulent data due to the fact that the investment banks waived defective loans, allowing them to be included in the mortgage securities.