Federal Judge Issues Tentative Dismissal of NCUA RBS Suit

Posted by Marissa Anema Wednesday, February 01, 2012 11:42:00 AM

WASHINGTON and LOS ANGELES, Calif. – The NCUA Tuesday expressed disappointment at another tentative ruling Monday by a federal judge in California who said he plans to dismiss NCUA's $629 million lawsuit against RBS Securities Inc. over the mortgage-backed securities it sold to the now defunct Western Corporate FCU (WesCorp).

The suit was filed by NCUA in July in the U.S. District Court for the Central District of California Western Division, Los Angeles. It claimed that RBS violated federal and state securities laws when it sold securities to San Dimas, Calif.-based WesCorp. The complaint alleged that RBS sellers and underwriters caused the corporate to believe the risk of loss associated with the investments was minimal.

On Monday, U.S. District Judge George H. Wu told NCUA's attorneys that an additional briefing submitted by NCUA after his Dec. 19 tentative ruling to dismiss had not convinced him that he'd erred in the earlier ruling. He noted the briefing was "insufficient." Wu said he would decide by the end of this week whether to dismiss NCUA's case or grant another leave to amend. The question, he said, was whether the insufficiency is in a manner that cannot be remedied in good faith.

"We are disappointed with Judge Wu's tentative ruling," said an NCUA spokesman. "As we indicated during yesterday's hearing, we believe he is imposing a heightened pleading standard not required by the law. Our allegations are quite specific and the vast majority of District Courts have upheld far less specific allegations in cases like this one.”

The information NCUA submitted addressed specific allegations of reduced documentation underwriting guidelines, loan-to-value ratios, and loan originators, among other things. It noted the same information has resulted in the denial of motions to dismiss in other securities-related cases in separate courts.

NCUA attorneys noted in Monday's hearing that it has originator-specific allegations indicating the originators did not follow underwriting guidelines.

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