The NCUA has filed another lawsuit against a Wall Street bank for selling bad mortgage-backed securities to now-failed corporate credit unions.
The most recent suit, filed in U.S. District Court in Kansas against UBS Securities, alleges the New York investment bank violated federal and state securities laws through misrepresentations in the sale of mortgage-backed securities to U.S. Central FCU and Western Corporate FCU.
The price paid for the securities by U.S. Central and WesCorp exceeded $1.1 billion. Both corporates subsequently failed and left federally insured credit unions holding a $50 billion tab for the legacy assets they left behind.
“The strength of our entire financial system relies on trust and accountability,” NCUA Board Chairman Debbie Matz said Thursday. “As our complaint makes clear, UBS Securities violated this trust, which contributed to the collapse of two corporate credit unions and the resulting crisis in the credit union industry. NCUA has worked to restore stability to the credit union system. Now we intend to hold UBS Securities, as well as other responsible parties, accountable.”
The NCUA’s complaint alleges UBS Securities made numerous misrepresentations and omissions of material facts in the securities’ offering documents. The complaint also alleges systemic disregard of the underwriting guidelines stated in the offering documents.
These misrepresentations caused U.S. Central and WesCorp to believe the risk of loss was minimal, when in fact the risk was substantial, the NCUA said.
The federal regulator has settled three suits filed against other Wall Street banks, recovering more than $170 million from Citigroup, Deutsche Bank Securities and HSBC. Those settlements earned the NCUA bragging rights as the first banking regulator to recover losses on behalf of institutions that failed as a result of faulty securities.
Recoveries from six additional suits would further reduce the corporate losses, which would consequently reduce the amount of future assessments, the agency said.