NCUA Files Suit Against UBS Securities in MBS Case
SEP 10, 2012 - 7:00 am
The National Credit Union Administration (NCUA) has filed suit in Federal District Court in Kansas against UBS Securities, alleging the investment giant violated federal and state securities laws through misrepresentations in the sale of mortgage-backed securities to U.S. Central Federal Credit Union (US Central) and Western Corporate Federal Credit Union (WesCorp).
NCUA’s complaint alleges UBS Securities made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions. The complaint also alleges systemic disregard of the underwriting guidelines stated in the offering documents. These misrepresentations caused US Central and WesCorp to believe the risk of loss was minimal, when in fact the risk was substantial.
NCUA said the price paid for the securities by US Central and WesCorp exceeded $1.1 billion. Both corporate credit unions subsequently failed.
“The strength of our entire financial system relies on trust and accountability,” said NCUA board chairman Debbie Matz. “As our complaint makes clear, UBS Securities violated this trust, which contributed to the collapse of two corporate credit unions and the resulting crisis in the credit union industry. NCUA has worked to restore stability to the credit union system. Now we intend to hold UBS Securities, as well as other responsible parties, accountable.”
NCUA has previously filed five similar actions against J.P. Morgan Securities, RBS Securities, Goldman Sachs and Wachovia. NCUA has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities, and HSBC, making it the first federal regulatory agency for depository institutions to recover losses on behalf of failed financial institutions that resulted from investments in faulty securities.
As liquidating agent for US Central and WesCorp, NCUA has a statutory duty to seek recoveries from responsible parties in order to minimize the cost of any failure to its insurance funds and the credit union industry.
Recoveries from these six additional legal actions would further reduce the total losses resulting from the failure of the five corporate credit unions. Losses from those failures must be paid from the Temporary Corporate Credit Union Stabilization Fund. Expenditures from this fund must be repaid through assessments against all federally insured credit unions. Thus, any recoveries would help to reduce the amount of future assessments on credit unions.
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