LOS ANGELES-Lawyers for NCUA asked a federal court last week to bar potentially embarrassing testimony by NCUA Board Members Debbie Matz and Gigi Hyland and former Chief Corporate Examiner Kent Buckham in the civil trial over the 2009 collapse of WesCorp FCU, which is projected to cost credit unions $7 billion to resolve.

Meanwhile, NCUA told Credit Union Journal that statements attributed to both Matz and Hyland in the lawsuit were not made by the either of the board members.

In a request for a protective order filed with the U.S. District Court for the Central District of California, NCUA claims the depositions of the three senior NCUA officials should be barred on the grounds that Robert Siravo, the former CEO of WesCorp, "has not shown that these high-ranking NCUA officials have direct, personal factual information pertaining to material issues in this action and that such information is not available through any other source."

But lawyers for Siravo, who is being sued for negligence in the failure of the one-time $34 billion corporate, claim that senior NCUA officials, particularly Matz and Hyland, downplayed financial troubles at WesCorp and the other corporate numerous times and placed the causes on the market and other extraneous reasons.

"It is no surprise that the NCUA wants to prevent this deposition; the statements are critical party admissions that show that as late as 2010 (after NCUA conserved WesCorp), the agency was singing the praises of the corporate credit unions' handling of the economic crisis and decisions to invest in (residential mortgage backed securities)," said Siravo's lawyers in defending their efforts for a public accounting of the agency's actions.

"The NCUA Board authorized this suit even though its members have admitted that they themselves believed these investments were safe and that WesCorp acted appropriately," Siravo's lawyers added.

In seeking to quash the Matz testimony, NCUA lawyers say federal law requires that Siravo prove that the NCUA chairman had "direct personal factual information" pertaining to the WesCorp case and that any information to be obtained from Matz is not available through any other source. "Siravo has failed to make either such showing," the NCUA lawyers told the court.

Siravo is one of five senior WesCorp officials sued by NCUA over the historic corporate failure. Three executives have settled charges against them, with one other, former CFO Todd Lane, continuing to contest the charges.

The failure of five corporates is projected by NCUA to cost CUs $20 billion to resolve.

A hearing on the NCUA request is scheduled for July 31 before a U.S. magistrate.

Siravo's lawyers cited what they said were remarks delivered to the Illinois CU League's annual meeting in 2010 in which they allege Matz said "Much of the blame falls outside the credit union industry," in support of their position.

But NCUA told Credit Union Journal that Matz made no such statement, and the agency provided a copy of Matz's text to support that.

Siravo's filing states that Matz told attendees that Residential Mortgage-Backed Securities (RMBS) like the ones that caused the WesCorp failure "have traditionally been relatively safe investments" that did not experience significant losses; how credit enhancements like the ones used by WesCorp reduce the risk of investments in RMBS; and that all RMBS purchased by the corporate were permissible and met the agency requirements.

Matz also said that RMBS "fit well into the corporate credit unions' business functions," and that "based upon historical performance" there was "very little risk" to corporate credit unions "with private-label mortgage backed securities" like the ones that sunk WesCorp.

NCUA issued a statement saying Matz also did not make those additional remarks.

Lawyers for the former WesCorp executive also cited a June 2008 speech by Hyland, even as WesCorp was headed toward failure, in which they allege that she said corporate credit unions were doing "just fine;" that their investments "continue to be extremely highly rated;" and that their investments "continued to perform." Hyland also said the corporates were "managing their unrealized losses and balance sheets "appropriately," according to Siravo's lawyers.

NCUA also told Credit Union Journal that Hyland did not make those comments.


Cutting To The 'Heart'

Siravo's lawyers say the alleged statements of the two NCUA board members are critical to their defense, because they indicate that NCUA, just like Siravo, could not have known the ultimate effect of WesCorp's investments. "These statements," said Siravo's lawyers, "cut to the heart of the NCUA's theory that somehow Mr. Siravo should have figured out the problems with RMBS faster than anyone else, even the governing agency that was responsible for overseeing the industry."

Buckham, who was once director of NCUA's Office of Corporate CUs, is now head of the agency's Office of Consumer Affairs.

Siravo is also planning on deposing the two NCUA examiners who worked on-site at WesCorp throughout the crisis: Lance McAllister, who is retired and now lives in Boynton Beach, Fla., and Joe Shoshoo, who still works at NCUA and lives in Indiana.

Subscribe Now

Authoritative analysis and perspective for every segment of the credit union industry

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.