A federal judge indicated yesterday he plans to reject Goldman Sachs' motion to dismiss National Credit Union Administration 's (NCUA) suit and continue the case challenging the Wall Street bank over $1.1 billion of faulty RMBS it sold to U.S. Central Federal Credit Union and WesCorp Federal Credit Union, the two biggest credit union failures ever.

Judge George Wu told lawyers for NCUA and the Wall Street bank during a hearing yesterday that he expects to reject Goldman’s argument that NCUA’s suit, filed in August 2011, was too late to satisfy the relevant statute of limitations for securities sold to the two corporate giants as early as 2006. He plans to issue a written ruling in the next few weeks, according to one of the attorneys at the hearing.

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.

The ruling by Wu, who is also presiding over NCUA’s civil suit against top executives of WesCorp, could affect other suits brought by NCUA against Wall Street banks for the failure of the two corporate and three others — Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union —in which the defendants are also claiming the suits were filed too late.

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 in the cases of U.S. Central and WesCorp.

In its motion to dismiss, Goldman argued that the two corporates were sophisticated investors who bought $30 billion of residential MBS between them and were issued comprehensive prospectuses detailing the numerous risks before they were sold the doomed investments. “The offering documents included extensive disclosures that informed the Credit Unions about the risky nature of the underlying loans, including disclosures about the “substantial” number of nonconforming loans and nontraditional loan products,” Goldman told the U.S. District Court for the Central District of California in its motion to dismiss the case.

Goldman also noted that NCUA has blamed various sources for the two huge failures; the WesCorp executives on the one hand in its civil suit, and the Wall Street banks on the other hand.

Goldman also argued that NCUA issued numerous public statements blaming the failure of the corporates on adverse market conditions. “NCUA’s allegations are “not only compatible with” but “more likely explained by” the collapse of the housing market,” said Goldman. “Indeed, NCUA’s claims here are contradicted by its prior public acknowledgment that “the losses associated with the private-label mortgage-backed securities that were held by corporate credit unions” were “cause(d)” by “the overall global economic crisis that emerged in 2007.”

Goldman noted that NCUA’s own Office of the Inspector General concluded that U.S. Central and WesCorp failed because their management pursued an “unreasonable” and “aggressive” investment strategy in RMBS.

Goldman is one of four Wall Street banks sued by NCUA for the failure of the five corporate. The others are RBS Securities, JPMorgan Chase and Wachovia Securities, now a unit of Wells Fargo. NCUA has reached out of court settlements with three other Wall Street banks, Citigroup, Deutsche Bank and HSBC, on the sale of MBS to the failed corporates.

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