A federal judge Friday dismissed claims by senior WesCorp Federal Credit Union officials that National Credit Union Administration 's (NCUA) may have contributed to the failure of the one-time $34-billion corporate by approving the risky investments that sunk the corporate giant.
The ruling came as Judge George Wu was issuing another ruling in a separate suit brought by NCUA over the corporate failures, rejecting claims by Goldman Sachs (see related story) that NCUA’s year-old suit was filed too late to satisfy the statute of limitations over the 2006 sale of mortgage backed securities to WesCorp and U.S. Central Federal Credit Union.
The role of Wu, who also is presiding over another suit by NCUA against RBS Securities, is pivotal to NCUA’s efforts to recover on the huge corporate losses as it will set precedent for numerous claims against Wall Street banks for the collapse of the mortgage market, including separate NCUA suits in Kansas against RBS and JPMorgan Chase for the corporate failures.
But Wu’s role is critical in the NCUA cases for another reason. The WesCorp defendants say NCUA cannot plausibly claim that the cause of the giant corporate failure was their fault and also claim the failure was caused by the Wall Street banks. The conflicting claims have been noted several times during mediation sessions in the WesCorp case held at the U.S. District Court for the Central District of California, according to several lawyers who were present.
According to one lawyer, who declined to be quoted because his client’s case is still before the court, the mediator, who was not Wu, suggested several times that NCUA is hurting its own cases by pursuing the WesCorp claims, especially since there is no insurance money to pay damages even if NCUA wins its WesCorp suit.
Wu is a 62-year-old New York native who was nominated to the federal bench in 2007 by President George W. Bush. He served as Assistant U.S. Attorney in California from 1982 to 1989 and from 1991 to 1993, and as assistant professor of law at the University of Tennessee from 1979 to 1982.
Meantime, NCUA last week agreed to settle its claims against a second WesCorp figure, Robert Burrell, who was chief investment officer for the corporate giant. The settlement came a week after NCUA settled claims against Timothy Sidley, WesCorp’s chief risk officer. The settlements leave three senior managers still facing charges: CEO Robert Siravo, CFO Todd Lane and Thomas Swedberg, director of human resources.
As part of their defense the WesCorp figures argued that NCUA, which had an on-site examiner at the corporate five days a week, approved of and knew of WesCorp’s investment strategies and activity and that the NCUA Board itself had voted numerous times to waive its investment rules to allow WesCorp to invest in risky MBS. But Wu on Friday dismissed that defense. “By striking these affirmative defenses, the Court does not preclude the Officer Defendants from offering evidence of the NCUA’s statements and conduct to the extent that such evidence is relevant to the issue of whether the Officer defendants breached their fiduciary duties, as alleged by NCUA,” ruled Wu.