WICHITA, Kan. Faced with diminishing prospects on its multi-billion dollars of corporate credit union claims, NCUA filed yesterday to appeal last week’s ruling by the U.S. District Court here dismissing the credit union regulator’s $555 million of claims against Barclays Capital for the sale of faulty mortgage-backed securities to U.S. Central FCU and WesCorp FCU, the two biggest credit union failures ever.
The notice of appeal to the Tenth Circuit Court of Appeals comes as the same court is reviewing an earlier ruling allowing NCUA’s MBS claims against RBS Securities, one of eight Wall Street banks being sued by NCUA for the failure of U.S. Central, WesCorp and three other corporates, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU.
NCUA disputes the characterization of the recent judge’s rulings as losses. "There are several cases pending in the federal district courts. Some rulings have been taken up on appeal. Substantial claims remain in litigation, and none of these cases are final,” asserted John Fairbanks, chief spokesman for the agency.
At issue is whether NCUA waited too long to satisfy the three-year federal statute of limitations on civil claims of securities violations for sales that occurred as long as six and seven years before the suits were filed. NCUA claims that the 1989 S&L bailout law, known as the Financial Institutions Reform, Recovery and Enforcement Act, or FIRREA, allow NCUA and the FDIC to start the clock on the statute of limitations after it takes over a failed credit union or bank. In the cases of U.S. Central and WesCorp that would be March 2009, and for the other three corporates September 2010.
In last week’s Barclays decision, the judge ruled that even considering the so-called extender statute related to FIRREA, NCUA waited too long to file the claims--as much as six and seven years after Barclay’s sold the MBS to U.S. Central and WesCorp. The suit was filed in the U.S. District Court for the District of Kansas, where U.S. Central was based.
The central question in all of the cases is whether the Wall Street banks knew the MBS they created by packaging subprime loans were beneath their own underwriting standards. Underlying the claims is whether the banks knew the MBS were doomed to fail.
The banks argue that U.S. Central the one-time $52 billion central bank for credit unions, and WesCorp, a one-time $34 billion corporate, were sophisticated investors who knew well the risks involved in the investments, which the banks assert cratered because of the worldwide mortgage bust.
The Barclays ruling was one of three losses for NCUA last week, with the same judge dismissing all of NCUA’s claims against Credit Suisse related to $590 million of MBS sold to the two corporate giants, and another federal judge in California dismissing the vast majority of $491 million of claims against Goldman Sachs.
In its notice to the Tenth Circuit NCUA indicated it is also appealing the Credit Suisse decision. NCUA has indicated it will also appeal the Goldman Sachs ruling to a separate appeals court for the Ninth Circuit in California, where WesCorp was based.
The court’s rulings have enormous ramifications for both credit unions—which are paying the $16 billion cost of the corporate bailout—but other investors sold faulty MBS by Wall Street, like Fannie Mae and Freddie Mac. Because of the huge stakes and the involvement of different appeals courts, most observers expect the cases to ultimately go to the Supreme Court.
NCUA has also filed suits against JP Morgan Chase, UBS and several defunct underwriters that have been acquired by surviving banks, including Bear Stearns, Washington Mutual and Wachovia.