TOPEKA, Kan. – A U.S. District Court judge in Kansas has given the go-ahead to continue a combined lawsuit filed by NCUA against RBS Securities Inc. and Wachovia Capital Markets Inc. over losses from mortgage-backed securities (MBS) the banks sold to the now defunct U.S. Central FCU and Western Corporate FCU.
The decision supported NCUA on two key questions: whether NCUA had met the statute of limitations requirement in filing the suit with an extension of time, called an "extender clause"; and whether the agency had provided enough evidence to make a "plausible" claim of misrepresentation by the banks regarding the risk of the securities bought by the corporates.
"NCUA is pleased that the court recognized the central merits of our complaints and allowed the cases to move forward," said NCUA Chairman Matz Thursday. "The Wall Street firms that created and sold these securities materially misrepresented the inherent level of risks to investors," she said.
"We will continue to vigorously pursue these lawsuits, and the others previously filed. As liquidating agent for U.S. Central, NCUA has a duty to maximize recoveries from responsible parties, in order to limit losses to the federally insured credit union system."
The suit against North Carolina-based Wachovia was tied to actions it took before being taken over by Wells Fargo in a government-arranged sale in 2008.
U.S. Central and WesCorp in 2006 each purchased around $44 million in residential mortgage-backed securities from Wachovia, and U.S. Central bought an additional $112 million in Wachovia-underwritten securities that were originated by a third party, NovaStar Mortgage Funding Trust.
NCUA has also filed similar lawsuits against Goldman Sachs & Co. and JP Morgan Chase.