WICHITA, Kan. Focus of NCUA’s efforts to recover billions of dollars in losses for faulty mortgage-backed securities sold to five corporate credit union failures is slowly shifting to the federal appeals court here, which has been asked to determine whether the credit union regulator waited too long to file civil claims, some of them dating to securities sold as much as seven years ago.
UBS Securities, one of nine Wall Street banks targeted in NCUA civil suits, asked the U.S. District Court for the District of Kansas to stay the NCUA suit against it until the Tenth Circuit Court of Appeals has ruled on the statute of limitations issue raised by RBS Securities, another investment bank targeted in NCUA civil suits.
JP Morgan Chase, now targeted in three separate NCUA actions for MBS sold to the failed corporates by Bear Stearns & Co. and Washington Mutual Bank, which it acquired in 2008, as well as its own investment bankers also has asked the federal court here to delay adjudication until the appeals court has ruled.
At issue is whether NCUA can extend the nominal statute of limitations on the civil claims until after it took the failed corporates under conservatorship from March 2009 in the cases of Kansas-based U.S. Central FCU and California’s WesCorp FCU, and September 2010 in the cases of Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU.
As UBS noted in its new request for a stay, the appeals court ruling not only will determine the validity of some $10 billion in claims by NCUA, but also billions of dollars in claims brought by Fannie Mae, Freddie Mac and hundreds of other investors. “A stay would, therefore, serve the interests of judicial efficiency by postponing a decision on these novel, and potentially dispositive, issues until the Tenth Circuit clarifies the law,” wrote the UBS lawyers in their motion.
“To continue with these proceedings absent guidance from the Tenth Circuit could, if this Court’s rulings are later contradicted by that decision, result in the waste of this Court’s resources,” said the UBS lawyers.
Other Wall Street banks sued by NCUA are: Goldman Sachs, Barclay’s Capital and Credit Suisse Securities. NCUA has reached out-of-court settlements with Citigroup, HSBC and Deutsche Bank Securities on MBS sold to the corporates.
NCUA claims federal law grants conservators such as it or the FDIC extended time to file civil claims in cases where it has adopted the status of liquidating agent, including the five corporate failures. A federal judge in the RBS cases issued an ambiguous ruling, saying he was inclined to agree with NCUA, but agreeing to let the appeals court have the final say. The appeals court has ordered both sides of the matter to submit written briefs by Feb. 15.
The stakes for NCUA and credit unions, which are paying the costs of the corporate failures, are enormous, as NCUA continues to work to offset an estimated $20 billion of losses for the huge failures, more than $12 billion just from the U.S. Central and WesCorp cases.
NCUA has argued in court that even though many of the MBS sales occurred as long ago as 2005 and 2006, the statute of limitations on its civil claims should not begin running until it took the corporate failures under conservatorship because it, as liquidating agent, could not have reasonably known the quality of the MBS were faulty until after it got unfettered access to the corporates’ books.