Wall Street Banks Again Call for Space Coast CU Suit Dismissal
Four months after Space Coast Credit Union was permitted to amend its complaint regarding alleged losses of more than $100 million in collateralized debt obligations, the defendant banks and rating firms are again seeking to have the suit dismissed.
On March 18, the $3 billion Space Coast in Melbourne, Fla., amended its complaint to include several claims including alleged fraud and unjust enrichment.
Among the banks named in the Space Coast suit were Wells Fargo Securities, formerly known as Wachovia Capital Markets, J.P. Morgan Securities, formerly known as Bearn Stearns & Co. Inc., Merrill Lynch and its subsidiary, Merrill Lynch Home Loans, UBS Securities and Barclay’s Capital Inc. Other defendants named were Richard S. Fuld Jr., former chairman/CEO of Lehman Brothers, and Moody’s Investors Service Inc.
The latest update from the defendants reiterated its position made in May 2012 saying the credit union was aware of the risks of CDOs and was warned of the implications of investing in securities linked to subprime and non-conforming loans.
In addition to claiming Space Coast did not have enough facts to support its case, the defendants said the credit union’s amended complaint did not have any new claims, according to the latest motion filed.
The case goes back to March 2012 when Space Coast filed a lawsuit against the banks and rating firms over claims it lost more than $100 million from collateralized debt obligations that were sold to Eastern Financial Florida Credit Union.
Space Coast acquired the financially troubled Eastern Financial Florida CU in 2009 after it was placed in conservatorship and issued a cease and desist order for questionable loan practices.
In its complaint, Space Coast said the CDOs led to a phony demand for residential mortgage loans, which also led to creating one of the state’s largest housing finance catastrophes.
Space Coast also said in its suit that creating and selling CDOs revolved around shoe-horning residential mortgage securities into Moody's and S&P's credit rating models to generate investment grade ratings. Investors were misled because they relied on the credit ratings, the credit union said.