A federal judge ruled yesterday that an agreement between National Credit Union Administration (NCUA) and Goldman Sachs in August 2010 allowed the credit union regulator to extend the statute of limitations on securities claims against the Wall Street bank and so refused to dismiss NCUA’s $1.1 billion claims over the failures of U.S. Central Federal Credit Union and WesCorp Federal Credit Union.
U.S. Judge George Wu rejected the argument made by Goldman that NCUA was too late in filing its suit in August 2011 to satisfy the relevant statute of limitations for securities sold to the two corporate giants as far back as 2006. Wu ruled that Goldman agreed to extend the statute of limitations on the NCUA claims as part of an August 31, 2010 “tolling” agreement. Such agreemenets are often entered into to give the sides more time to negotiate before one party files suit.
NCUA has argued that the relevant statutes of limitations only began to run when the federal regulator took each of the failed corporates under conservatorship, in March 2009.
U.S. Central is the one-time $52 billion bankers’ bank that acted as a central bank for credit unions, and WesCorp is a one-time $34 billion corporate credit union that pooled investments from more than 1,000 credit unions, upstreaming some of those funds to U.S. Central.
Yesterday’s ruling came as NCUA was filing a new suit in federal court in Kansas where U.S. Central was based charging another Wall Street bank, UBS Securities, with malfeasance in the sale of $1.1 billion of residential mortgage-backed securities to the two corporates.
Wu’s ruling is important because three other Wall Street banks also being sued by NCUA over the corporate failures; RBS Securities, JPMorgan Chase and Wachovia Securities, now a unit of Wells Fargo, have also claimed that NCUA violated the relevant statutes of limitations in suing them.
U.S. Central and WesCorp are among five corporate credit unions to have failed during the 2008-2009 mortgage crises due to their investments in MBS. The others are Members United Corporate Federal Credit Union of Chicago; Southwest Corporate Federal Credit Union of Dallas; and Constitution Corporate Federal Credit Union of Hartford, Conn.
The failure of the five corporates is projected to cost $20 billion to resolve, which will be paid for by the nation’s 7,000 federally insured credit unions.