Sept. 7, 2012 – NCUA on Thursday filed suit against UBS Securities over alleged misrepresentations in the sale of more than $1.1 billion in residential mortgage-backed securities to the now-defunct U.S. Central FCU and Western Corporate FCU.
The suit, filed in federal district court in Kansas, says UBS violated federal and state securities laws. The agency cites 10 counts for action and seeks damages “in an amount to be proven at trial.” Recoveries will be used to offset corporate system stabilization costs, which are being paid by natural person, federally insured credit unions.
“NAFCU strongly supports any reduction in the cost of credit union corporate stabilization for our members,” said Carrie Hunt, NAFCU’s general counsel and vice president of regulatory affairs. “We have long urged the agency to leave no stone unturned in seeking any legally valid recoveries.”
Credit unions will pay an estimated $790 million this October to cover stabilization costs. The NCUA Board approved the 9.5bp assessment this July; invoices go out this month.
“The strength of our entire financial system relies on trust and accountability,” NCUA Chairman Debbie Matz said in announcing Thursday’s action. “As our complaint makes clear, UBS Securities violated this trust, which contributed to the collapse of two corporate credit unions and the resulting crisis in the credit union industry. NCUA has worked to restore stability to the credit union system. Now we intend to hold UBS Securities, as well as other responsible parties, accountable.”
NCUA’s complaint alleges UBS Securities made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions. The complaint also alleges systemic disregard of the underwriting guidelines stated in the offering documents. NCUA says these misrepresentations caused U.S. Central and WesCorp to believe the risk of loss was minimal, when in fact the risk was substantial.
Thursday’s is the sixth suit filed by the agency in its efforts to recover losses stemming from the corporates’ RMBS purchases and subsequent failures. The other five suits were against J.P. Morgan Securities LLC, RBS Securities, Goldman Sachs and Wachovia.
NCUA has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities and HSBC, making it the first federal regulatory agency for depository institutions to recover losses on behalf of failed financial institutions that resulted from investments in faulty securities.
The agency notes that as liquidating agent for U.S. Central and WesCorp, it has a statutory duty to seek recoveries from responsible parties in order to minimize the cost of any failure to its insurance funds and the credit union industry.