WICHITA, Kan. – NCUA urged a Federal court here Friday to reject a request by JP Morgan Chase to stay its suit against the Wall Street bank for the failure of U.S. Central FCU and WesCorp FCU, arguing a stay would risk the elimination of key documents in the case and delay the potential payout of hundreds of millions of dollars in damages to credit unions.
The Wall Street bank has asked the U.S. District Court for the District of Kansas for a stay in the case until the Tenth Circuit Court of Appeals has review a lower court ruling in NCUA’s suit against RBS Securities regarding the statute of limitations on the claims regarding residential mortgage-backed securities sold to the two corporate credit union giants.
But NCUA in its motion opposing a stay, notes that neither RBS or the other four Wall Street banks being sued by NCUA in the Kansas court—including Wells Fargo’s Wachovia Capital, Credit Suisse, UBS Securities and Barclay’s Capital—have asked for a stay during the appeals process.
JP Morgan, wrote the NCUA lawyers, proposes to stay this case indefinitely until the Tenth Circuit issues a ruling in the RBS appeal. “That could extend to the Fall of 2013 or beyond.”
Such a long delay, argues NCUA, could put critical materials at risk, including loan files and underwriting guidelines, from third parties, such as the originators who made the loans that form the (MBS) at issue in this case. “Delaying discovery put the evidence at risk of loss, destruction, or deterioration,” says the NCUA lawyers. “Several relevant originators have already become defunct, making the process of getting the loan files and origination guidelines increasingly difficult—and that process will only get worse as the underlying events become more distant.”
NCUA also argued that a stay would delay it from performing its public duties as liquidating agent for the corporates, that is, the recovery of funds owed to the estates of the corporate failures. “A stay would merely hamper NCUA’s efforts to fulfill its public duties in a timely fashion,” they lawyers wrote.
NCUA’s civil suit against JP Morgan revolves around $1.5 billion of MBS the Wall Street bank sold to four of the five failed corporates: U.S. Central, WesCorp, Members United Corporate FCU and Southwest Corporate FCU. The suit is filed in U.S. District Court in Kansas, which has jurisdiction over Lenexa, Kan.-based U.S. Central.
NCUA claims that JP Morgan failed to properly disclose the risks and true nature of the mortgages it packaged into MBS, which went bad within months of their sale, creating billions of dollars in losses.
NCUA has similar suits pending against six other Wall Street banks, including RBS, Wells Fargo (Wachovia), Credit Suisse, UBS Securities and Barclay’s Capital, in federal court in Kansas, and Goldman Sachs and RBS in federal court in California, and has reached out-of-court settlements of similar claims with Citigroup, Deutsche Bank and HSBC.
In its motion for a stay, JP Morgan notes that the Tenth Circuit Court of Appeals has agreed to review a lower court ruling allowing NCUA to extend the nominal statute of limitations on securities claims sold to the corporates—some as long ago as 2005—because the federal agency did not have access to the corporates’ records until after NCUA took the failed entities under conservatorship in March 2009. NCUA claims it is entitled to an extension of the filing deadline—known as an extender statute—because of the extraordinary authority granted federal bank and credit union conservators.
The lower court agreed with NCUA and has allowed the claims to proceed. The Tenth Circuit has agreed to review the lower court’s ruling.