WICHITA, Kan. The FDIC asked a federal appeals court here Friday to overturn a lower court ruling dismissing $550 million of securities claims by NCUA against Barclays Capital, as the ruling could jeopardize billions of dollars in claims the banking regulator itself has against numerous Wall Street banks.
In its amicus brief, the FDIC told the U.S. Court of Appeals for the Tenth Circuit the lower could erred when it ruled that Barclays could repudiate an agreement with NCUA to toll, or suspend, the running of the statute of limitations on the claims while the parties negotiated a settlement, thereby allowing the deadline on the suits to expire.
“This interpretation is wrong for a number of reasons,” says the FDIC in its brief. “Statutes of limitations have for centuries been uniformly interpreted by the courts to be subject to tolling agreements.”
The claims surround faulty mortgage-backed securities Barclays sold to U.S. Central FCU and WesCorp FCU, the two corporate credit union failures projected to cost NCUA and credit unions $12 billion to resolve.
NCUA entered into tolling agreements with the more than a dozen Wall Street banks it has sued over the sale of MBS to five corporate credit union failures in order to negotiate settlements, and succeeded in reaching out-of-court deals with four banks, Bank of America, Citibank, HSBC and Deutsche Bank. The credit union regulator still has suits pending against JP Morgan Chase, Goldman Sachs, RBS Securities, UBS Securities, Credit Suisse and Morgan Stanley.
The FDIC also filed an amicus brief with the same appeals court that ruled in favor of NCUA last week in its claims against RBS Securities. Both suits were brought by NCUA in federal court in Kansas where U.S. Central, the one-time $52 billion central bank for credit unions, was based.
Both the credit union agency and the banking regulator argue that even though most of the securities were sold by Barclays as long ago as 2005 and 2006—as many as five years before NCUA brought suit—the Financial Institutions Reform, Recovery, and Enforcement Act, known as FIRREA, allows regulators to begin running the three-year statute of limitations on securities claims after they take over a failed institution. In the cases of U.S. Central and WesCorp that was March 2009.
The FDIC says since the 1989 passage of FIRREA, the S&L bailout law, it has entered into “hundreds” of tolling agreements, with approximately 80 currently in effect, and this practice was never challenged until this case.
The FDIC told the court because of Barclays’ unethical conduct in disavowing its tolling agreement after using it to induce the NCUA to delay filing suit within the limitations period, Barclays should be barred from raising the statute of limitations as a defense.