Specifically citing losses experienced by the failed $23 billion Western Corporate FCU, the U.S. Departmentof Justice this week sued Standard & Poor's Ratings Services,alleging it defrauded investors in residential mortgage-backedsecurities and collateralized debt obligations.

The DOJ said in a release that WesCorp collapsed after sufferingmassive losses on RMBS and CDOs rated by S&P. The JusticeDepartment said to date, federally insured financial institutionshave suffered more than $5 billion in losses in connection with thefailure of CDOs rated by S&P from March to October 2007.

The suit was filed Monday in U.S. District Court in LosAngeles.

“Significant harm was caused by S&P's alleged conduct in theCentral District of California,” said U.S. Attorney André BirotteJr. “Institutional investors located in my district, such asWesCorp, suffered massive losses after putting billions of dollarsinto RMBS and CDOs that received flawed and inflated ratings fromS&P.”

The lawsuit alleges that S&P issued inflated ratings thatmisrepresented the securities' true credit risks. The complaintalso alleges that S&P falsely represented its ratings asobjective, independent and uninfluenced by S&P's relationshipswith investment banks when, in actuality, S&P's desire forincreased revenue and market share led it to favor the interests ofthese banks over investors.

“Put simply, this alleged conduct is egregious – and it goes tothe very heart of the recent financial crisis,” said U.S. AttorneyGeneral Eric Holder. “Today's action is an important step forwardin our ongoing efforts to investigate – and – punish the conductthat is believed to have contributed to the worst economic crisisin recent history. It is just the latest example of the criticalwork that the President's Financial Fraud Enforcement Task Force ismaking possible.”

Joining the Justice Department were attorneys general fromCalifornia, Connecticut, Delaware, the District of Columbia,Illinois, Iowa and Mississippi, who have filed or said they willfile civil fraud lawsuits against S&P alleging similar ratingsmisconduct.

After WesCorp was seized by the NCUA on March 20, 2009, WesCorpmember credit unions were forced to write off all paid-in capital and member capital accounts whichtotaled $1.14 billion as of Jan. 31, 2009.

At the time, Director of Office of Examinations and InsuranceMelinda Love said the WesCorp losses forced 90 member credit unionsbelow 7% net worth.

Federally insured credit unions are still repaying the cost tosecuritize corporate legacy assets. In November 2012, the NCUAestimated the annual corporate assessments to total between $6billion and $8.9 billion by the time the corporate stabilizationfund expires in 2012. WesCorp accounted for a majority of corporatelosses.