The NCUA on Sept. 23 filed nine federal lawsuits in New York against eight banks over the sale of nearly $2.4 billion in mortgage-backed securities to failed corporates Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union.
The suit marks the first time the NCUA is seeking damages from losses sustained only at those two corporates.
The NCUA claimed defendants Morgan Stanley & Co. Inc. and Morgan Stanley Capital I Inc., Barclays, J.P Morgan/Bear Stearns, Credit Suisse, Royal Bank of Scotland and UBS sold faulty securities to the corporates. Additionally, Goldman Sachs, Wachovia and Residential Funding Securities LLC, now Ally Securities, sold faulty securities to Southwest Corporate.
The suits make claims under federal and state securities laws.
“We continue to pursue accountability and recovery in the wake of billions of dollars in sales of faulty securities that led to the collapse of several corporate credit unions and handed the industry the costly bill of paying for the losses,” NCUA Board Chairman Debbie Matz said.
Southwest and Members United paid more than $416 million for the securities in question in the Morgan Stanley suit and more than $1.9 billion for securities sold by the other defendants.
The NCUA alleged the firms made misrepresentations in connection with the underwriting and subsequent sale of the mortgage-backed securities. The federal regulator also claimed the securities’ offering documents contained statements that were not true or omitted material facts.
The originators systematically abandoned the stated underwriting guidelines in the offering documents, according to the complaints, with the result that the securities were significantly riskier than represented.
Any recoveries gained from the legal actions will be applied toward the Temporary Corporate Credit Union Stabilization Fund and could reduce future corporate assessments, the NCUA said.