The NCUA announced Friday it filed suit Aug. 16 in Federal District Court in Kansas against another Wall Street firm that the regulator said sold faulty mortgage-backed securities to failed corporates U.S. Central Federal Credit Union and Western Corporate Federal Credit Union.
Morgan Stanley & Co. Inc. and other firms were named as defendants in the suit, according to an NCUA release. The NCUA said the investment bankers violated federal and state securities laws when it sold more than $566 million in mortgage-backed securities to the U.S. Central and WesCorp.
The complaint alleges the offering documents of the securities contained statements of material fact that were not true or omitted material facts.
As in similar suits, the NCUA alleged the originators systematically abandoned the stated underwriting guidelines in the offering documents, according to the complaint, and the securities were significantly riskier than represented. The result, the complaint says, was that the securities were destined from inception to perform poorly.
“Firms like Morgan Stanley sold securities that turned out to be faulty, triggering a crisis in the credit union industry that has been extremely expensive to contain and repair, and credit unions are still paying the tab,” NCUA Board Chairman Debbie Matz said. “All the credit unions we supervise and insure are sharing this burden. The people who are accountable, those who precipitated this crisis, should be required to shoulder that burden, as well.”
NCUA has similar actions pending against Barclays Capital, Credit Suisse, Goldman Sachs, J.P. Morgan Securities, RBS Securities, UBS Securities, Wachovia, Bear, Stearns, and Washington Mutual Bank.
Until an Aug. 27 U.S. 10th Circuit Court of Appeals ruling in Denver, the big bank defendants had been successful in dismissing the charges by claiming the NCUA was required to file the suits within a three-year statute of limitations they said began when the corporates first purchased the investments.
The NCUA countered that the clock started ticking when it placed U.S. Central and WesCorp into conservatorship in March 2009.
However, the 10th Circuit ruled earlier this week that the NCUA can proceed with its claims against several of the banks, affirming a ruling in federal district court in Kansas last year that said a federal extender statute allowed NCUA more time to file its lawsuits.
To date, the agency has settled claims worth more than $335 million which will be applied toward the costs of corporate stabilization measures, and will offset any future assessments paid by federally insured credit unions, the agency said.