CU SUES WALL STREET OVER EASTERN FINANCIAL FAILURE

WALL STREET-Space Coast CU filed suit last week against several Wall Street brokerages, claiming they sold risky investments to Eastern Financial Florida CU they knew were bound to fail, the first time the big credit union failures of the past few years has been brought to the doors of Wall Street.

Space Coast, which took over the one-time $2.4-billion Eastern Financial CU after its 2009 failure, claims that Barclays Capital intentionally packed a $2-billion collateralized debt obligation, known as a CDO, with risky investments, then bet on those investments to fail. The CDO, known as the Markov CDO, did fail, costing Eastern Financial a loss of $150 million and precipitating the biggest CU failure ever, outside the corporates.

Space Coast, based in Melbourne, Fla., acquired the remnants of the failed Miami-area credit union giant, creating one of the biggest credit unions in the country with some $3.3 billion in assets. Space Coast also names as defendants in the suit State Street Corp., which co-wrote the CDO offering.

In the suit, Space Coast called the Eastern Financial CDO "materially similar" to the controversial CDO sold by Goldman Sachs in 2007 called Abacus. Goldman agreed to pay $550 million to settle SEC charges that it sold the bonds, then bet for it to fail.

Space Coast claims the underwriters mislead officials with the failed Eastern Financial when they said State Street would be choosing the collateral for the CDO, when it was actually Barclays-the same firm that is underwriting NCUA's $30 billion offering or corporate bailout bonds-that was choosing the collateral they thought was likely to fail.

The facts "lay to rest any notions of chance and instead evince deliberate-indeed, malevolent-design," Space Coast said in the suit. "Barclays chose riskier synthetic assets so as to win its best against them, and chose safer cash assets to ensure that its bet would actually pay off."

 

NCUA KNEW OF SEIZED CU'S ONLINE GAMBLING ACTIVITIES

WASHINGTON-Vensure FCU, recently taken under conservatorship by NCUA, claims the federal regulator knew all along it was processing millions of dollars in online bets for the two biggest poker websites and had agreed at the agency's behest to exit the business.

The Mesa, Ariz., CU, which filed suit in federal court challenging the NCUA action as "arbitrary and capricious," claims it provided NCUA with as many as 50 legal opinions since starting to process online poker bets last year of the legality of providing automated clearinghouse services for Trinity Global Corp.

Trinity's $2-million CU account was seized by federal prosecutors along with funds at 32 banks April 15 as part of a sting aimed at shutting down illicit gambling sites. Trinity was processing as much as $25 million a day through the credit union for bets made at the Poker Stars and Full Tilt Poker websites.

Lawyers for the CU assert that NCUA's assumption in taking over Vensure is wrong and the CU would not be insolvent if federal prosecutors force it and the other banks to forfeit those funds. The lawyers insist the CU, which had 26% net worth at March 31, is financially stable, has strong management and significant resources, including its field of membership serving Arizona's Vensure Employment Services and its 12,000 "participants."

Vensure acknowledges that NCUA issued it a cease-and-desist letter on Jan. 18 insisting it exit the online poker business, and says its board voted Jan. 31 to do just that, notifying Trinity Global of a termination of its processing agreement in 180 days.

The suit says that publicity related to the NCUA conservatorship is already having negative affects on its business and has caused at least five members to close their accounts and could lead to a run on deposits. "An immediate injunction is necessary to return VFCU to the hands of its management, who can continue to implement VFCU's business plan and restore confidence to members," the suit says.

The credit union has a checkered past. It was chartered in 1955 in upstate New York as Grand Adirondack FCU, then moved briefly in 2009 to Florida, before relocating to Arizona later that year and reconstituting itself as Vensure FCU. At March 31 it had 144 members but no member loans and the vast majority of its business was the processing of online gambling bets, which allowed it to earn net income of $592,000 on just $2.7 million in assets for 2010.

 

GOVT-SUBSIDIZED ENERGY LOANS BEING PILOTED AT CUS, BANKS

WASHINGTON-Two credit unions will participate in a new two-year pilot program that will offer qualified borrowers living in certain parts of the country low-cost loans to make energy-saving improvements to their homes.

Backed by the Federal Housing Administration, these new PowerSaver loans will offer homeowners up to $25,000 to make energy-efficient improvements to their homes.

The lenders approved for the pilot include University of Virginia Community CU and Oregon's SOFCU Community CU, along with 16 banks and mortgage lenders.

Participating lenders were selected based on their commitment to work in partnership with established home energy retrofit programs provided by states, cities, utilities and home performance contractors. These markets include, but are not limited to, areas of the country participating in the U.S. Department of Energy's Better Building Program. PowerSaver loans will be backed by the FHA but require these lenders to have significant "skin in the game." FHA mortgage insurance will cover up to 90 percent of the loan amount in the event of default. Lenders will retain the remaining risk on each loan, incentivizing responsible underwriting and lending standards.

PowerSaver loans are only available to borrowers with good credit, manageable debt and at least some equity in their home (maximum 100% combined loan-to-value).

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