NCUA sues JPMorgan and RBS to recover losses from failed institutions
The National Credit Union Administration sued JPMorgan Securities (JPM) and RBS Securities (RBS) Monday to recover billions of dollars lost by the failure of five corporate credit unions. The NCUA, which functions as the "liquidating agent" for all failed credit unions, alleged violations of federal and state securities law and misrepresentations in the sale of hundreds of residential mortgage-backed securities, according to a public statement. The sellers, issuers and underwriters of the RMBS deals -- in this case JPM and RBS -- underestimated the risk associated with the securities, NCUA said, causing credit unions which bought the securities experienced "dramatic" and "unprecedented" declines in value. NCUA is seeking $800 million dollars from JPMorgan and RBS, according to the complaints filed Monday. However, this is just the first round in a series of litigation cases NCUA plans to bring against Wall Street firms. The organization said it aims to reclaim billion of lost dollars. "NCUA has a responsibility to do everything in our power to seek maximum recoveries from those involved in the issuing, underwriting and sale of the faulty securities that resulted in the failures of five of the largest wholesale credit unions," said Debbie Matz, chairman of the NCUA Board. "We expect to file additional actions and seek a total amount of damages in the billions of dollars. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions." Matz said the litigation cases spurred from an investigation into the cause of the five failed wholesale credit unions, namely, the U.S. Central Corporate Credit Union, Western Corporate Credit Union, Southwest Corporate Credit Union, Members United Corporate Credit Union and Constitution Corporate Credit Union. All five were taken into conservatorship in 2009 and 2010. Wholesale credit unions provide various services to retail credit unions, such as check clearing, electronic payments and investments. Retail credit unions deal actively engage with borrowers. The National Association of Federal Credit Unions openly advocated the NCUA effort Monday afternoon in a public statement. "NAFCU has long urged NCUA to leave no stone unturned in attempting to make our members whole by recouping some of the cost of corporate stabilization," the trade organization said. "NAFCU fully supports any and all NCUA legal action aimed to reach culpable parties, including today’s suits." Write to Christine Ricciardi.