The NCUA won a big legal victory Aug. 27 when the U.S. 10th Circuit Court of Appeals in Denver ruled the regulator can proceed with its claims against Wall Street firms over mortgage backed securities sold to the failed U.S. Central Federal Credit Union.
The appeals court affirmed the ruling of the Federal District Court in Kansas last year that a federal extender statute, which allowed NCUA more time to file its lawsuits, applied in the cases of the agency’s securities law claims. The defendants in the suits—RBS Securities, Wachovia and nine other defendants who sold 29 MBS to U.S. Central—had argued the agency had filed its claims too late and asked the court to dismiss them.
The bankers claimed that the NCUA was required to file the suits within a three-year statute of limitations they said began when U.S. Central first purchased the investments. The NCUA countered that the clock started ticking when it placed U.S. Central into conservatorship in March 2009.
The lawsuits, which were consolidated by the court, alleged violations of federal and state securities laws and misrepresentations in the sale of the securities to U.S. Central. The court granted part of the defendants’ motions to dismiss the case in July 2012 but denied the remainder of the charges, which the banker defendants then appealed.
On April 29, Judge John W. Lungstrum delayed proceedings on the suits pending the appeals court ruling, citing concerns about the time and expense of litigation.
“We’re pleased with the Court’s decision,” said NCUA Chairman Debbie Matz. “We will continue to pursue our claims against firms that sold faulty mortgage-backed securities to corporate credit unions. As liquidating agent for the corporate credit unions, NCUA has a duty to maximize recoveries from responsible parties in order to limit losses to federally insured credit unions.”
The decision could breathe life back into a similar case in U.S. District Court in California, which on July 12 dismissed the NCUA’s claims against Goldman Sachs over MBS sold to the failed Western Corporate Federal Credit Union.
In that case, Judge George Wu agreed with Goldman attorneys that the NCUA’s claims were time barred and the claims should have been filed within three years of the purchase of the investments.
However, Wu—who also presided over the NCUA’s suits against WesCorp executives—approved the NCUA’s request for an appeal on the statute of limitations issue, saying the issue has generated a substantial degree of disagreement and was material to the case.
To date, the agency has reached $335 million in settlements with Bank of America, Citigroup, Deutsche Bank Securities and HSBC. Those funds, less legal fees, will be applied toward corporate stabilization costs and would reduce any future assessments federally insured credit unions would pay.