DENVER A lawyer for NCUA told a federal appeals panel this morning that billions of dollars in claims related to the corporate credit union bailout rely on whether the courts allow it to extend the nominal statute of limitations on securities claims until after it and the banking regulators take over failed institutions.
Washington attorney David Frederick told the Court of Appeals for the Tenth Circuit that the 1989 S&L Bailout Law, known as FIRREA, provides the federal government with extraordinary powers in its efforts to recover for the resolution of failed financial institutions and thereby overrides the nominal three-year statute of limitations under federal securities laws.
The outcome of this case, noted Frederick, who also represents the NFL Players Association in its suit against the league, will have an enormous impact on similar claims brought against Wall Street banks by other government agencies, like the FDIC and the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.
But lawyers representing RBS Securities, Wachovia Capital (now a unit of Wells Fargo) and several subprime lenders being sued by NCUA over the failed mortgage-backed securities they sold to five failed corporates told the Court that such reasoning would give NCUA and other regulators unlimited time to pursue alleged wrongdoing and create legal uncertainty in the vast securities markets. In some of the 10 lawsuits NCUA has filed against Wall Street banks the claims were not filed until as long as seven years after the securities were sold to the corporates.
The stakes in the case are enormous because NCUA has filed almost $9 billion in claims against the biggest Wall Street banks; among them JP Morgan Chase, Goldman Sachs, Credit Suisse Securities, UBS Securities and Barclay’s Capital. NCUA claims the banks negligently packaged subprime mortgages into MBS that either failed or were significantly downgraded soon after they were sold to the now-defunct corporates—U.S. Central FCU, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU.
NCUA maintains even though the federal statute of limitations expired long before it filed some of the claims, the S&L Bailout Law, known formally as the Financial Institutions Reform, Recovery and Enforcement Act, specifically allows it and federal banking regulators to begin the clock on the three-year statute of limitations after they have taken over a failed institution. In the cases of U.S. Central and WesCorp that was March 2009, and for the other three corporate failures it was September 2010.
The outcome of this case is so important that a lower court judge has agreed to stay, or delay, eight NCUA suits brought in Kansas—where U.S. Central was based--until resolution of this issue. Two separate suits in California—where WesCorp was based--may also rest on the ruling.
A ruling against NCUA would wipe out the vast majority of its claims and create a huge setback in its efforts to recover losses from the five corporate failures, estimated at around $16 billion.
A decision by the appeals court is not expected until late summer or early fall.