Rep. Darrel Issa (R-Calif.) has asked NCUA Inspector General William DeSarno to determine if the NCUA violated an executive order when it inked a contingency agreement with two law firms handling the regulator’s securities fraud lawsuits against Wall Street bankers.
Issa, chairman of the House Committee on Oversight and Government Reform, made the request in an Oct. 16 letter to DeSarno obtained by Credit Union Times.
In the letter, the California lawmaker was critical of the NCUA’s contingency fee arrangements with two law firms, the Washington-based Kellogg Huber and the Chicago-based Korein Tillery, because they are collecting 25% of all claims recovered from banks that allegedly sold fraudulent securities to corporate credit unions that resulted in their collapse.
That means of the more than $170 million in claims that the NCUA says have been settled with Citigroup, Deutsche Bank Securities and HSBC, more than $40 million has been paid to the law firms. The remaining $127.25 million will be applied to the corporate stabilization fund.
In a letter dated April 23, the NCUA told Issa Executive Order 13433, which prohibits federal agencies from entering into contingency agreements, does not apply because the NCUA “does not receive appropriations of tax dollars for the agency’s insurance or regulatory functions.”
Additionally, the NCUA said the order would not apply to the NCUA Board “when it is acting as a conservator or liquidating agent for a federally insured credit union.”
Issa told DeSarno in the letter, “it is my belief that if the NCUA’s member credit unions had an opportunity to weigh in, they would ask that the agency take all steps to minimize the amount NCUA would otherwise have assessed federally insured credit unions – including eliminating the use of contingency fee arrangements.”
The California congressman pointed out that the Federal Housing Finance Agency, which is acting as conservator for Fannie Mae and Freddie Mac, do not utilize contingency arrangements because “the agency considers them a bad value.”
The Wall Street Journal reported Thursday the arrangement has political implications, because leaders and employees at the two firms have made large campaign donations to Democratic Party candidates.
NCUA Chairman Debbie Matz is a Democrat appointed to the board by President Barack Obama in 2009. In addition to her first term on the NCUA board from 2002 to 2005, Matz was deputy assistant secretary of agriculture during the Clinton administration.
NCUA Associate General Counsel John Ianno told the Wall Street Journal that now-retired General Counsel Bob Fenner selected the firms, and the selection process was not public.