Seven mid-sized credit unions turned rumor to fact late yesterday when they filed a negligence and breach of fiduciary duty suit in Los Angeles County Superior Court against officers and directors of failed $18 billion Western Corporate Federal Credit Union and against valuation company RiskSpan.

Only three plaintiffs are from California: the $35 million 1st Valley Credit Union, the $338 million Glendale Area Schools Federal Credit Union and the $75 million Tulare County Federal Credit Union.

Other plaintiffs include the $57 million Stamford Federal Credit Union of Stamford, Conn.; the $56 million KaiPerm Northwest Federal Credit Union of Portland, Ore.; and Washington-based credit unions, the $256 million Cascade Federal Credit Union and the $119 million Northwest Plus Credit Union.

The suit charges that defendants "negligently adopted and pursued an irresponsibly risky" investment program that abandoned the "mission, purpose and goals of the credit union system." Furthermore, defendants failed to recognize economic conditions and take steps to protect assets, instead reassuring members that "finances were sound" and that "WesCorp's 2008 financial performance would be its best year ever."

RiskSpan stands accused of gross negligence in "executing its seriously flawed economic models" and painting "a falsely positive picture" of WesCorp investments.

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