Louisiana Corporate Credit Union has emerged victorious from a decade-long suit involving the liquidation of National Century Financial Enterprises, announcing Tuesday it has agreed to a $600,000 settlement with Credit Suisse, the last remaining defendant in the securities fraud case.
“This settlement for nearly $600,000 after legal fees came after years of strenuous litigation and brings the total recovery to 98% of Louisiana Corporate’s original investment amount,” said David Savoie, president/CEO of the $137 million LaCorp.
Savoie told Credit Union Times the windfall will roughly double LaCorp’s existing retained earnings of $524,000 as of the end of February. And, to put the extra income into perspective, the Metairie, La.-based corporate’s 2013 net income was $378,000. Savoie said he had budgeted for a $191,000 net profit this year, so the settlement funds are expected to increase LaCorp’s 2013 income threefold.
Savoie said the contingent legal fees totaled 10%, adding the rate was much lower than seen in recent settlements of asset-backed securities. The NCUA’s 25% contingency rate was challenged by Rep. Darrell Issa (R-Calif.) last fall. However, the regulator’s Inspector General determined after an investigation that the legal fees are reasonable.
LaCorp’s attorneys and CPA firm had estimated that at least 80% of the fraud losses would be recouped through National Century’s liquidation; however, the corporate had been required to write down 80% of the bond as an other than temporary impairment. But in a twist of fate, by following GAAP, recoveries of previous write-downs have been recorded as a credit to income and used to bolster LaCorp’s retained earnings.
In two separate civil actions filed in 2002 against a number of defendants, LaCorp engaged in a more than decade-long court case, vowing to regain its 141 members’ funds to the greatest extent possible.
This latest settlement brings to a total $2,446,000 recovered from the original $2,500,000 default, plus an additional $25,000 in interest earned before the bond defaulted, Savoie said.
“Our efforts have resulted in a stronger corporate for our members,” Savoie said. “Our board’s philosophy has always been that investment losses, like loan losses at natural-person credit unions, should not be shrugged off as ‘water under the bridge’; we decided to make every reasonable effort to recover the funds if competent legal and accounting professionals believed it to be feasible.”
Other plaintiffs joining in the suit and sharing in the settlement include PIMCO, Dreyfus Mutual Funds, Wachovia and numerous Arizona municipal entities.
Savoie and the LaCorp Board worked closely with their legal counsel, R. Patrick Vance, partner with the New Orleans law firm of Jones Walker. Vance provided invaluable advice regarding ABS litigation and how OTTI estimates are often assumed to be more reliable than warranted, Savoie said.
“OTTI estimates are produced in a highly complex and technical manner,” said Vance, who leads Jones Walkers' Business & Commercial Litigation Practice Group “Like all estimates, they are predictions of the future and can vary widely. Based on the current method/protocol for determining OTTI, they may prove to be overstated when all the chips have fallen.”
LaCorp said in its case, initial OTTI mandates of 80% were off by 78%.
Savoie said he is gratified by the result.
“While it was a long time coming, the corporate and our legal counsel steadfastly pursued this matter, and our members enjoy an even stronger institution as a result,” he said.