Judge Orders Stay of Proceedings in Eight NCUA MBS Suits
In a sweeping order that delays proceedings on eight pending NCUA lawsuits against Wall Street banks over mortgage-backed securities sold to failed corporate credit unions, U.S. District Judge John W. Lungstrum said this week he will wait for the result of an appeals court ruling, citing concerns about the time and expense of litigation.
“The 1oth Circuit’s opinion (applied to each of these cases) could result in the dismissal of all claims with respect to a number of certificates, including the dismissal of all claims against certain defendants,” the Kansas City, Kan.-based Lungstrum wrote Monday in reference to the U.S. Court of Appeals for the 10th Circuit.
That appellate court is scheduled to hear oral arguments on two related NCUA securities cases in Denver on May 8.
The stay of proceedings applies to NCUA suits against RBS Securities, Wachovia Capital Markets, J.P. Morgan Securities, UBS Securities, Barclays Capital, Credit Suisse, Bear, Stearns & Co. and JPMorgan Chase Bank.
All sold securities to the failed U.S. Central FCU, which was located in Lenexa, Kan. The NCUA claims the banks did not fully disclose the risks associated with the securities.
In opposing the stay, the NCUA said the delay could be detrimental to the discovery process.
However, Lungstrum said the time and expense that could be avoided if the appeals court rules in favor of the appealing banks “significantly outweigh” the NCUA’s concerns.
The bank defendants have argued that the NCUA failed to file the suits within a three-year statute of limitations that they say began when U.S. Central and other corporates first purchased the mortgage backed securities. However, the NCUA has countered that the statute of limitations should have begun when it placed the corporates into conservatorship.
The NCUA has come under criticism for entering into contingency agreements with law firms handling the cases. Rep. Darrel Issa (R-Calif.) asked NCUA Inspector General William DeSarno in October 2012 to determine if the NCUA violated Executive Order 13433, which prohibits federal agencies from entering into contingency agreements.
DeSarno said the NCUA did not violate the executive order, and further said the fees charged by the firms were reasonable.
Despite the criticism, should the cases be dismissed, the NCUA’s contingency agreements might be a blessing, because attorneys typically only collect a percentage of the settlement, rather than billing by the hour.
To date, the NCUA has collected $335 million in settlements from suits over securities sold to failed corporates.