A federal judge yesterday dismissed key charges in National Credit Union Administration (NCUA)’s suit against officers and directors of WesCorp Federal Credit Union, but allowed several other charges to remain, making it increasingly likely there will be a trial in the failure of the one-time $34 billion corporate credit union.
U.S. Judge George Wu dismissed charges by NCUA that the WesCorp figures violated the California Business Judgment Rule in loading up the corporate with risky MBS that eventually failed and caused losses of as much as $7 billion.
“They may have made choices – or not made other choices – with which the NCUA disagrees, but that does not mean they failed in their responsibilities so severely that they lose the protection of the business judgment rule,” Wu wrote.
The judge ruled that NCUA has had several opportunities to argue the business judgment rule violation but has failed to persuade him.
But Judge Wu ruled that several other counts should stand, including: breach of fiduciary duty; that WesCorp CEO Bob Siravo and human resources director Robert Swedberg conspired to pump up their retirement accounts; and that Todd Lane, WesCorp’s chief financial officer, violated fiduciary duties as a member of its asset liability committee. Those issues will be the subject of continued litigation, the judge ruled.
NCUA claims in its suit that the executives and directors of the failed corporate were negligent in loading up WesCorp with risky private-label MBS in order to chase the higher yields the securities were paying.
Named as defendants in the suit are: Siravo, Lane, Swedberg, Robert Burrell, former chief investment officer, Timothy Sidley, chief risk officer.
Directors named as defendants include CEOs of some of the biggest credit unions in the country, including CUNA President Bill Cheney, who served on the WesCorp board as CEO of Xerox FCU (now Xceed Financial Credit Union), Robert Harvey, then CEO of Seattle Metropolitan Credit Union; James Jordan, Schools Financial Credit Union; Timothy Kramer, Keypoint Credit Union; Robin Lentz, Cabrillo Credit Union; John Merlo, Premier America Credit Union; Gordon Dames, former CEO of Mountain America Credit Union; Warren Nakumara, Honolulu Federal Credit Union; Brian Osberg, Potelco United Credit Union; David Rhamy, Silver State Schools Credit Union; and, Sharon Updike, Eagle Community Credit Union.
Facing mounting losses estimated to be as much as $7 billion, WesCorp was taken over by NCUA in March 2009 and is one of five failed corporates – along with U.S. Central Federal Credit Union, Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union – that have caused a massive resolution plan by NCUA that is projected to cost the credit union industry approximately $15 billion to $20 billion to resolve.