Credit Union Administration Sues Wall Street Firms to Recover Investment Losses


The National Credit Union Administration (“NCUA”) has filed suit against J.P. Morgan Chase and Royal Bank of Scotland seeking to recover more than $800 million in failed credit unions’ losses in residential mortgage-backed securities, and expects to file additional lawsuits against five to ten other Wall Street firms to recover billions of dollars in additional losses, according to a Wall Street Journal article by Ruth Simon and Liz Rappaport entitled “NCUA Sues J.P. Morgan, RBS Over Mortgage Bonds.”

NCUA has been investigating Wall Street firms’ sales of mortgage-backed securities for over a year after several of corporate credit unions failed during the credit crisis.

NCUA charters and regulates a nationwide network of credit unions, and manages funds that insure deposits when credit unions fail. After placing failed credit unions in conservatorship and liquidation, NCUA now possesses hundreds of mortgage-backed securities that were held by them.

The lawsuits allege that the offering documents represented that the loan originators adhered to specified underwriting guidelines when, in fact, the originators had systematically failed to do so. These failures were significant because both the guidelines and performance of the mortgage-backed securities are tied to the borrower’s ability to repay the loan.

Thus, the offering documents allegedly misled credit union officials into underestimating the risk of the mortgage-backed securities. Also named in the complaints are name the loan originators, many of which are out of business. The suits expressly disclaim and disavow any allegation that could be construed as alleging fraud.

The suit against RBS seeks approximately $565 million in losses in mortgage-backed securities sold to U.S. Central Corporate Credit Union, a failed credit union based in Kansas City. The suit against J.P. Morgan seeks approximately $278 million in losses in mortgage-backed securities sold to U.S. Central, Members United Corporate Credit Union, Southwest Corporate Credit Union, Constitution Corporate Credit Union and Western Corporate Credit Union, also known as WesCorp.

“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,” NCUA Board Chairman Debbie Matz was quoted as saying, adding: “Those who caused the problems in the corporate credit union system should pay for the losses.”

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving mortgage-backed securities. For further information, please contact us.