NCUA Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure

In its fifth MBS lawsuit seeking what is now totaling to be nearly $2 billion in compensatory damages for wholesale credit union members, the National Credit Union Administration (NCUA) wants $491 million in compensatory damages from Goldman Sachs. NCUA is accusing the financial firm of misrepresenting the MBS that were sold to member credit unions that then sustained huge losses that led to their failure.

Goldman Sachs allegedly misrepresented material facts in prospectuses, marketing collaterals, and when selling the MBS. Because of this, NCUA says that the credit unions thought that the risk of loss for their investments was low.

NCUA filed its securities complaint against Goldman Sachs in California district court. NCUA is serving as the liquidating agent for the corporate credit unions that failed. It has filed other securities lawsuits seeking nearly $2 billion in compensatory damages. Two of the other defendants that NCUA is suing are RBS Securities and JPMorgan. Both, and others, are accused of underestimating the risks involved with the MBS.

The wholesale credit unions that failed are:
• Constitution Corporate Credit Union
• Southwest Corporate Credit Union
• Members United Corporate Credit Union
• U.S. Central Corporate Credit Union.
• Western Corporate Credit Union

Because these “corporate” credit unions failed after they invested in toxic MBS that was marketed by Wall Street firms, the credit unions industry has suffered. There are also smaller credit unions that have failed, which has resulted in costs of at least another $1.3 billion. Now, the industry must contend with billions of dollars that will have to be paid over the next several years.

While the NCUA did try to prevent having to shut down the failed corporate credit unions by taking over management of US Central and WesCorp in 2009, including guaranteeing all retail credit union deposits in the corporate credit unions and borrowing up to $20 billion from the Treasury to offer liquidity (this amount has since been paid back), the five credit unions mentioned above were closed in 2010.

NCUA says it is its statutory obligation to obtain recoveries from the parties responsible for the demise of the corporate credit unions and that this will minimize the failure costs to the industry and its insurance funds. It is pursuing those who issued, soled, and underwrote the faulty MBS. NCUA contends that the credit unions.

Our securities fraud law attorneys represents institutional and individual investors throughout the US. We are appalled at all the misconduct on Wall Street that contributed to the financial crisis of 2008. We continue to help our clients’ recoup their losses while holding the negligent parties responsible through arbitration and in court.

Regulator sues Goldman Sachs over risky mortgages, AP, August 9, 2011

Mortgage-backed securities losses costing nation’s credit unions, Investigative Reporting Workshop, December 22, 2010

NCUA Sues Wall Street Over Corporate Debacle, Credit Union Journal, June 20, 2011

NCUA sues JPMorgan and RBS to recover losses from failed institutions, Housing Wire, June 20, 2011

More Blog Posts:
$629M Mortgage-Backed Securities Lawsuit Blames RBS Securities and Other Financial Firms For Bankruptcy of Western Corporate Federal Credit Union in 2009, Institutional Investor Securities Blog, July 26, 2011

Morgan Stanley Reports a Possible $1.7B in Mortgage-Backed Securities Losses, Institutional Investor Securities Blog, August 16, 2011

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011