Space Coast Credit Union confirmed that it has resolved part of a lawsuit it filed in March 2012 against two Wall Street banks involving collateralized debt obligations that were sold to the defunct Eastern Financial Florida Credit Union.
“The case is resolved and SCCU is pleased,” said Laura Richard, vice president of marketing at the $3 billion credit union in Melbourne, Fla., in a statement to Credit Union Times.
The case goes back to March 2012 when Space Coast filed a lawsuit against several Wall Street banks banks and rating firms over claims it lost more than $100 million from CDOs that were sold to Eastern Financial Florida CU.
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.
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 State Street Corp., 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.
Space Coast’s resolution of the suit against Barclays and State Street comes after the credit union was allowed to amend its complaint in March to include several claims of fraud and unjust enrichment. In July, the defendant banks and rating firms sought to have the suit dismissed.
The credit union’s suit against the other banks is still pending.
Richard said she could not provide any additional information because Space Coast does not comment on legal matters.
However, she did provide a brief statement to Credit Union Times from David Bishop, an attorney with the law firm Kirby McInerney LLP in New York, who represented Space Coast.
“We resolved the case and we know that our client is pleased with the result,” Kirby said.