Defendants in the litigation flowing from the liquidation of the Western Federal Corporate Credit Union have served notice that they want to depose the NCUA in the case.

According to documents filed by the U.S. District Court for the Central District of California under Judge George Wu, the defendants, Robert Siravo, Todd Lane, Robert Burrell, Thomas Swedberg and Timothy Sidley, are seeking to question agency staff about mortgage-backed securities WesCorp purchased from J.P. Morgan Securities, RBS Securities and Goldman Sachs & Co.

Specifically, the defendants want to question the agency about “the history, formation, risk, popularity, public perception and industry perception” of residential mortgage-backed securities, private-label MBS and option arm MBS purchased between 2000–2007. In addition, they want to know the extent that CUs and corporate CUs purchased those securities to diversify their investments during that period.

The defendants will also ask the agency about “advice and directives given by the NCUA to credit unions and corporate credit unions between 2000-2007” regarding those securities and their purchases.

If the deposition goes forward, NCUA board members or, more likely, agency staff with knowledge of the NCUA's treatment of MBS investments will have to appear at a law office in Los Angeles on March 7.

The filing is the latest move in a case in which the NCUA has charged the former executives with a variety of failings, among them purchase and concentration of mortgage-backed securities that, the agency alleged, helped lead to the credit union's collapse.

In an earlier filing, Siravo countered the charge that he and other defendants were responsible for the purchase of the MBS by pointing out the NCUA had also known of, and approved of, those purchases.

“The NCUA, through its OCCU examiners, consistently approved of WesCorp's investment strategies and investment concentrations, including WesCorp's investments in option ARM MBS, lower tranche MBS and reduced documentation MBS,” Siravo argued in an Oct. 31, 2011, filing. “On information and belief, the NCUA knew and approved of WesCorp's investment strategies and risk management efforts,” Siravo wrote, adding, “In those instances, to the extent there were any, where the NCUA raised any concerns regarding WesCorp's risk assessment efforts, WesCorp promptly addressed those concerns, and the NCUA and the WesCorp board subsequently approved of WesCorp's remedial efforts.”

Legal experts who spoke about the possible depositions speculated that this defense may be one of the lines of argument that could be supplemented by what might be uncovered in depositions.

“Certainly that would be one line of their defense,” said one financial services attorney who declined to speak for attribution because he had not seen the notice. “If they could uncover advice from NCUA to buy more of the securities or notices from NCUA that Wescorp's investment strategy was sound, that could definitely help their case,” he said.

But he called this defense of the board's actions problematic because there is a large body of case law that holds a financial institution cannot hide behind a regulator's approval as a defense. “A regulator's exam is not an audit,” he said, “nor is it a stamp of approval.”

Another attorney who also declined to speak specifically to the case, questioned whether the NCUA might have a strong defense against the deposition in the fact that none of the current board members were seated on the NCUA board at the time of the security purchase. But the scope of the deposition included more than just board members seeking “one or more of [the agency's] officers, directors, managing agents, employees or agents who are most qualified to testify on its behalf” about the MBS purchases and policy. “That could mean just a staff person who would make a statement that a set of documents was actually in the possession of the agency,” the attorney noted, “or it could mean a staff person who really knew about the policy.”

In fact, Richard Drooyan, Siravo's attorney with Los Angeles firm of Munger, Tolles & Olson LLP, said that was precisely the deposition's intent. “There is obligation under federal rules of procedure for corporations to produce staff with expertise in those areas,” Drooyan explained.

A third attorney speculated the deposition might prove a tough fight but would not predict that some sort of deposition was out of the question.

“Judges are loathe to interfere with the discovery process,” he observed, “because they know this is one key reason a lot of cases are settled. Also, courts have a lot of discretion about what they will allow in discovery.”

The attorney added that the deposition request appeared broad enough that it could be the first motion in what will turn out to be a negotiation toward a more narrowly focused deposition or document discovery.