WICHITA, Kan. Several Wall Street banks told a federal appeals court Friday that confidential contingency agreements with lawyers representing NCUA on its corporate credit union suits contradicts NCUA’s own argument it should be afforded special powers to extend the statute of limitations on the multi-billion corporate claims.
RBS Securities, Wells Fargo’s Wachovia Capital Markets, Nomura Home Equity Loan, Financial Asset Securities and NovaStar Mortgage Funding, are all being sued by NCUA in federal court on claims they violated their own underwriting standards by packaging faulty subprime loans into tens of billions of dollars of mortgage-backed securities that went sour soon after they were purchased by U.S. Central FCU and WesCorp FCU. Though many of the MBS were sold to the now-failed corporates as long as four years before NCUA brought suit, the credit union regulator claims it should be given deference to extend the nominal three-year statute of limitations because provisions in the 1989 S&L Bailout Law affords agencies of the federal government legal rights to extend such statutes.
But the Wall Street banks say NCUA’s claims on behalf of the corporates are time-barred because they were filed too late to satisfy either the relevant statutes of limitations.
Half-dozen other Wall Street banks being sued by NCUA for the collapse of the corporates have made similar arguments, including Goldman Sachs, UBS Securities, Barclay’s Capital, Credit Suisse Securities and JP Morgan Chase, which is also being sued for MBS sold by Bear Stearns and Washington Mutual Bank.
The U.S. Court of Appeals for the Tenth Circuit has agreed to review the banks’ case to determine whether the NCUA claims are time-barred.
In a brief filed Friday with the appeals court the banks say that NCUA is not, in fact, acting as a government agency, but as liquidating agent for two private entities, U.S. Central and WesCorp.
“First, NCUA is not the “government” in this case because it is acting solely in its capacity as a liquidating agent for two private credit unions,” claim the banks. “Agencies that step into the shoes of private parties are subject to the same defenses as those private parties, absent a clear congressional mandate to the contrary.”
“As the Supreme Court noted of a similar agency the FDIC is not the United States,” say the banks in their brief.
“Indeed,” say the banks, “NCUA itself has publicly stated it is not acting as the government when it plays the role of liquidating agent of a failed credit union. As was recently reported, NCUA has entered into contingency-fee arrangements with the law firms representing it in this action, notwithstanding (Presidential) Executive Order No. 13433, prohibiting federal agencies from entering into such agreements.” In fact, they note, NCUA said publicly it does not have to follow the Executive Order because it is an independent agency acting as a liquidator of failed credit unions.
NCUA has adopted this stance on numerous occasions, like in 2010 when it told credit unions it was giving its employees a 5% pay raise for 2011, despite a Presidential freeze on federal employees’ pay, because NCUA is an “independent” agency and not bound by such government-wide directives.
The stance has ired Congress, which has directed the NCUA Office of the Inspector General to investigate whether the contingency agreements on the corporate suits are legal.
The case has enormous significance for both NCUA and credit unions, which are paying the estimated $20 billion cost of the collapse of U.S. Central and WesCorp, and three other corporates, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. NCUA hopes to defray some of the costs by recovering on its claims with the Wall Street banks. So far, three Wall Street banks, Citibank, HSBC and Deutsche Bank Securities have agreed to settle similar claims out-of-court and to pay NCUA $171 million. But the claims pending against the various other banks are far larger and involve billions of dollars of potential recoveries.