NCUA Inspector General William DeSarno told House Oversight and Government Reform Chairman Darrell Issa (R-Calif.) in a Feb. 6 letter that amounts paid to attorneys working under contingency contracts on securities fraud suits are reasonable and are not unnecessarily high.
The agency’s Office of the Inspector General reached the conclusion based upon an independent review of costs; however, the highly redacted report shields that information from the federally insured credit unions that are repaying corporate losses through assessments.
Those legal costs are subtracted from settlement amounts received from the suits, which are attempting to recover losses that resulted from securities sold by investment banks to corporate credit unions.
The information is of interest to credit unions because settlement monies are to be applied to the outstanding corporate stabilization fund balance, and would reduce future corporate assessments.
What DeSarno did make public is the revelation that the NCUA’s Office of General Counsel, at the time led by now-retired Robert Fenner, considered whether to even proceed with the suits at all due to the “enormous amount” of time and money that would be required and the “considerable risk” that the suits could result in little or no recoveries.
However, Fenner’s office concluded that it had a responsibility to attempt to recover as much of the $16 billion worth of losses sustained by the corporates as possible.
The OIG also concluded that it supports the NCUA’s position regarding its exemption from a George W. Bush-era executive order that prohibits contingency agreements for federal agencies, a point Issa pressed when he first questioned the arrangements last October.
“NCUA as conservator ‘steps into the shoes’ of the credit union and is no longer functioning as a government agency,” the OIG report said in its summary of findings.
The OIG report sourced outside legal opinions gathered by Fenner and his office, and a 2007 legal opinion from the FDIC that concluded the banking regulator is also not required to adhere to the executive order.
The report also included opinion from the Federal Housing Finance Agency in which the FHFA said it is not bound by the executive order, but “it acknowledged the prevailing government policy under the “E.O” that outside counsel should be retained on an hourly basis.”
The FHFA also noted that it relied heavily upon staff attorneys at Fannie Mae and Freddie Mac to conduct “the lion’s share of the fee review work.”
The OIG also investigated charges raised in October by the Wall Street Journal that the NCUA selected its firms based upon political affiliation, because partners in both retained firms have public records of donations to Democratic candidates. Current NCUA Chairman Debbie Matz is also a Democrat.
However, the decision to retain the firms was deliberated under Republican Michael Fryzel’s chairmanship, and the NCUA signed the agreements one week prior to Matz’s swearing in on Aug. 24, 2009.