U.S. District Judge Inge Johnson advanced U.S. Central Federal Credit Union's fraud securities suit into discovery phase on March 2 when she denied the so-called "director defendants" motion to dismiss. In denying the motion, Judge Johnson wrote the case involves "complex factual issues that are more appropriately addressed in motions for a summary judgment." On Feb. 25, she denied a separate motion to dismiss filed by U.S. Central's accounting firm RubinBrown LLP.
The judicial order means plaintiff Corporate America Credit Union and defendants may now request documents and other evidence from each other to build their case, using the power of subpoena if necessary.
Corporate America President/CEO Thomas Bonds said he was pleased with the decision, and looked forward to discovery phase.
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The Alabama retail corporate has accused U.S. Central of violating the Securities and Exchange Act and state laws when it solicited PIC II capital from members in late 2008 and concealed the extent of investment losses. The at-risk capital was depleted due to OTTI just weeks after corporates converted the funds from member capital shares.
Defendants had argued, among reasons to dismiss, that Corporate America's claim was based upon losses suffered by U.S. Central, not Corporate America, making it a derivative claim. However, Bonds has previously said U.S. Central's investment losses and its solicitation of PIC II capital are two different events, and Corporate America's $9 million PIC II loss is a direct claim.
In addition to RubinBrown, the suit names all dismissed U.S. Central volunteers and executives at the time of conservatorship, including remaining U.S. Central Chief Financial Officer Kathy Brick. The suit does not name the NCUA as a defendant, but includes "John Doe" defendants, leaving the legal door open to the possibility of including others.
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