- Hispanic Resources
NCUA filed suit today in California against New York firm Goldman Sachs & Co., alleging violations of federal and state securities laws as well as misrepresentations in the sale of securities to now-failed U.S. Central and Western Corporate federal credit unions.
This action seeks damages of more than $491 million from Goldman Sachs, bringing the total sought in the four lawsuits filed to date to nearly $2 billion.
Any recoveries from these legal actions would reduce the total losses resulting from the failure of the five corporate credit unions. The five wholesale credit unions placed into NCUA conservatorship and now liquidated are U.S. Central, Western Corporate, Southwest Corporate, Members United Corporate, and Constitution Corporate.
NCUA’s new suit against Goldman Sachs claims the sellers and underwriters of the questionable securities made numerous material misrepresentations in the offering documents. These misrepresentations caused the corporate credit unions to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial.
The mortgage-backed securities experienced dramatic, unprecedented declines in value, effectively rendering five corporates insolvent. The combined suits are the culmination of lengthy investigations into the circumstances surrounding the purchases of these securities.
This lawsuit follows three similar legal proceedings, two filed in the Federal District Court of Kansas June 20 against J.P. Morgan Securities LLC and RBS Securities, and one in the Federal District Court in Central California, also against RBS, July 18.
Five to 10 additional lawsuits may follow to recover losses from the purchase of securities that caused the failures of five corporate credit unions.
“NCUA continues to carry out our responsibility to do everything reasonable in our power to seek maximum recoveries,” said NCUA Board Chairman Debbie Matz. “By these actions we intend to hold responsible parties accountable. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.”
As liquidating agent for the failed corporate credit unions, NCUA has a statutory duty to seek recoveries from responsible parties to minimize cost to its insurance funds and the credit union industry.
“While the credit union industry generally fared better than the rest of the financial world over the last few years, the corporate credit union collapse remains the largest crisis ever faced by credit unions,” said Matz. “Fortunately, given the liquidity in the system, the average consumer is insulated from these past losses. However, it remains our statutory duty to replenish the insurance fund that protects consumer deposits by seeking recoveries.”