A key lawmaker has called on National Credit Union Administration (NCUA) for information regarding lucrative fee arrangements NCUA has struck with several law firms representing the agency in multi-billion dollar civil suits against Wall Street banks over their sale of MBS to the five failed corporate credit unions.
Rep. Darrel Issa, chairman of the House Oversight Committee, has asked NCUA’s Inspector General to investigate the use of so-called contingency fees in the Wall Street suits, in which NCUA is requesting billions of dollars in damages in compensation for the failed corporates. With contingency fees lawyers payments are contingent on the amount of money they recover, rather than on an hourly rate.
According to an Oct. 16 letter from Issa to the NCUA IG, of the $170 million in out-of-court settlements NCUA has recovered to date from Wall Street banks Deutsche Bank Securities, Citigroup and HSBC, 25%, or $42.5 million, has gone to two law firms hired under a contingency agreement.
“Because of the unusual fee agreement, only $127.25 million flowed into the estates of the failed credit unions,” noted Issa. "Any fee arrangement that reduces the amount of money in the Stabilization Fund places a greater burden on the (NCUSIF) members in terms of fees and assessments," he wrote.
The brunt of the legal claims amounting to billions of dollars, though, are still pending, providing a potential windfall in legal fees for the outside firms representing NCUA, notes the California Republican.
The lawmaker questioned the legality of the contingency agreements, which were banned for all federal agencies under a 2007 executive order by President George W. Bush. But NCUA responded to an earlier inquiry about the agreements by explaining it is an independent federal agency and not bound by such executive orders.
NCUA has filed civil suits over the past 18 months against JPMorgan Chase, Goldman Sachs, RBS Securities, UBS Securities, Barclays Capital and Wachovia Securities (now a unit of Wells Fargo), which are all pending, claiming the banks sold faulty MBS that contributed to the failures of the five corporates, U.S. Central Federal Credit Union, WesCorp Federal Credit Union, Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union.
In each of the suits NCUA is represented by Kellogg Huber Hansen Todd Evans and Figel, one of the two firms which split the $42 million in contingency fees for the three out-of-court settlements, providing a potential for a huge payday for the Washington, D.C.-based law firm.
Congressman Issa asked the NCUA Inspector to determine whether President Bush’s executive order should cover NCUA and whether the contingency fee deals are the best possible alternative under the given circumstances.
According to Issa, the Federal Housing Finance Agency, which is suing several of the same Wall Street banks for securities they sold to Fannie Mae and Freddie Mac, does not use contingency agreements because it considers them a bad value.
In a statement, NCUA said it retained specialized outside counsel consistent with agency policies and with applicable law. “The Office of the Inspector General functions independently of the NCUA Board, and we cannot comment on its activities,” said John Fairbanks, spokesman for the agency.