WICHITA, Kan. — A federal judge here yesterday dismissed the majority of $590 million of securities claims brought by NCUA against Credit Suisse Securities in the 2009 collapses of U.S. Central FCU and WesCorp, dealing the credit union regulator another defeat in its efforts to recoup losses for the biggest credit union failures ever.
Judge John Lungstrum ruled that NCUA waited too long to file the civil suit against the Wall Street bank over 12 of 20 residential mortgage-backed securities Credit Suisse sold to the two corporate giants, but continued the case on the other eight MBS sold to U.S. Central, WesCorp and to a third corporate failure, Southwest Corporate FCU.
In his 35-page ruling Judge Lungstrum says a federal extender statute allows NCUA to extend the statute of limitations on the securities claims in which it may file suit three years from the March 2009 date NCUA took U.S. Central and WesCorp under conservatorship—and not from a year later when NCUA liquidated the corporate giants—making the October 4, 2012 claims filed on 12 of the Credit Suisse MBS too late under federal law. “Thus, even assuming compliance with the one- and two-year discovery limitations periods, (NCUA’s) claims would still be untimely under the three- and five-year limitations periods for every certificate,” wrote the Judge.
“Because those claims (all on behalf of WesCorp and U.S. Central) were not filed within three years of the date on which (NCUA) became conservator, they are untimely and are subject to dismissal,” wrote the Judge.
The ruling is the second loss for NCUA’s corporate claims in the last month and trims the amount of potential recoveries from Credit Suisse in this case by $404 million. Last month a federal court in Los Angeles tentatively dismissed some of NCUA’s $491 million of claims against Goldman Sachs & Co. on the grounds that they were also filed too late.
The Goldman Sachs case was filed in Los Angeles, where the federal court has jurisdiction over WesCorp, the one-time $34 billion corporate that was based in nearby San Dimas, Calif. The Credit Suisse suit was filed in Kansas, where the court has jurisdiction over U.S. Central, the one-time $52 billion central bank for credit unions that was headquartered in Lenexa, Kan.
The statute of limitations issue is central to the almost $10 billion of claims NCUA has filed against ten Wall Street banks who sold MBS that went sour soon after they were sold to one or more of the five failed corporates. Some of the MBS were purchased by the failed corporates as early as 2005 and 2006, as long as seven years before NCUA filed its civil suits. But NCUA says it is not bound by the nominal three-year federal statute of limitations on securities claims in these cases because as a federal regulator it could not know of the details of the MBS until after it took over the failed corporates and was able to review the books. NCUA argues that the 1989 S&L bailout law allows a federal agency to begin the statute of limitations after it becomes conservator, or liquidator, of a failed credit union or bank.
In yesterday’s ruling Judge Lungstrum says NCUA can’t have it both ways and the relevant beginning of the federal statute of limitations is the date it takes a failed credit union under conservatorship. In the cases of U.S. Central and WesCorp that was March 20, 2009, three-and-a-half years before it filed the Credit Suisse suit.
The ruling could have broad ramifications on other corporate suits brought by NCUA against Barclay’s Capital, JP Morgan and Bear, Stearns, which is now owned by JP Morgan, all of which were filed more than three years after the 2009 takeovers of U.S. Central and WesCorp.
In bringing the suits, NCUA is seeking to recover a projected $16 billion to $20 billion of losses credit unions are paying for the collapse of the five corporates, which also includes Members United Corporate FCU and Constitution Corporate FCU, that NCUA is resolving. NCUA announced a $165 million settlement last week with Bank of America, the fourth out of court settlement with Wall Street banks in the case. Other settlements have come from Deutsche Bank Securities, HSBC and Citibank.
