The NCUA stood firm Tuesday in Los Angeles federal court,refusing to provide documents regarding what role credit unionofficers and NCUA examiners played in the failure of fourcorporates and one natural person credit union.

The documents were subpoenaed in a suit brought by the U.S.Government, not the NCUA, alleging ratings agency Standard & Poors' deliberately manipulated ratings onmortgage-backed securities to further its own financial interestsin the years leading up to the financial meltdown.

Four failed corporates – U.S. Central Federal Credit Union, Western Corporate Federal CreditUnion, Members United Corporate Federal Credit Union and SouthwestCorporate Federal Credit Union – were included in the federalgovernment's argument, ensnaring the NCUA as a third party in thesuit. The failed Eastern Florida Financial Credit Union was alsonamed as one of the government's 21 failed entities that S&Pallegedly defrauded.

In its case, the U.S. Government claimed the five credit unionslost hundreds of millions of dollars as a result of S&P'salleged misrepresentations.

In a June 13 court order, U.S. District Judge David O. Carterwrote that S&P has repeatedly insisted that both the Governmentand third parties have “stiffed” it on its discovery requests.

S&P subpoenaed records from the NCUA in January and Februaryof this year requesting documentation regarding its regulatoryoversight of the credit unions as they purchased thesecurities.

Requested documents included reports, evaluations, assessments,studies, finding or analyses regarding the accuracy of ratingsissued by agencies, investigations of any credit union for fraud,deceptive practices or mismanagement, and losses as a result ofinvestments in residential mortgage backed securities orcollateralized debt obligations.

Specifically, S&P said it is interested in documentationfrom the three corporates that were assigned full-time examinersthat were required to be onsite on a monthly basis – U.S. Central,WesCorp and Southwest.

“In light of NCUA's oversight duties over five of S&P'salleged victims, documents in its possession are relevant,” Carterwrote in the June 13 court order. “Several defenses pleaded byS&P, such as 'unclean hands,' raise the question of whether thevictim institutions were at fault for their losses.”

The NCUA's documents could also answer questions of causation,such as whether S&P's ratings were material to the creditunions' investment decisions.

Carter rejected the NCUA's argument that its regulationsmandated that the credit unions could only purchase securities withcertain credit ratings, and as a result, its supervision could notaffect the force of the regulations. The judge reasoned thatargument would only hold water if the regs stripped the creditunions of the ability to choose one security over another.

“Obviously, that is not the case,” Carter wrote.

Carter also rejected the NCUA's argument that documentssupporting its material loss reviews were irrelevant because theyaddressed only the general causes of the failures.

While the judge ruled against the NCUA's arguments of privilege,Carter stopped short of demanding the NCUA hand over the documents.Instead, he allowed the NCUA to file an additional motion if it canbetter argue its position that the documents are protected bydeliberative process privilege.

NCUA attorneys were not immediately available to comment on whenor if they would file an additional motion.

An S&P spokesman said the ratings agency is awaiting awritten ruling from Carter from Tuesday's hearing regarding therelease of documents supporting the NCUA's material loss reports,how the credit unions used ratings in their investment decisionsand the credit unions' views of the mortgage market when theinvestments were purchased. An Aug. 19 hearing has also beenscheduled to address additional discovery issues, the spokesmansaid.

Stuart Perlitsh, CEO of the $341 million Glendale Area SchoolsFederal Credit Union, led a lawsuit filed by seven credit unions inNovember 2009 that alleged negligence and breach of fiduciary duty by WesCorp management andvolunteers that caused the corporate's failure.

The plaintiff credit unions agreed to allow the NCUA to takeover as the plaintiff in the suit, which was eventually settled.Perlitsh said as part of the agreement between the credit unionsand the NCUA, the original plaintiffs could not revive the suit ifdocuments revealed now implicate WesCorp management or volunteersfor the loss.

However, he added that should such information go public, itwould provide some closure to the corporate crisis.

“S&P's lawyers here are bringing up our same complaint,”Perlitsh said, referring to a motion filed that claims thecorporates may have engaged in excessively risky investmentstrategies and were responsible to at least some extent for theirlosses.

“I think after sustaining a million dollar loss from ourPIC account at WesCorp, additional transparency by the NCUAwould provide some closure that we have not yet obtained.”