National Credit Union Administration (NCUA) told the federal court yesterday it will add new charges against directors and officers of WesCorp FCU, even as its efforts to hold leaders of the corporate credit union accountable for the failure of the $34 billion corporate may be slipping away.
NCUA said members of WesCorp’s budget and asset liability committees, all of whom were CEOs of big credit unions themselves, should have moved to rein in WesCorp executives as the corporate dove deeply into the market of newly created option ARM securities, constructed from what are commonly referred to as “liar loans.”
By the end of 2007, WesCorp had more than $9 billion of its $30 billion portfolio sunk into the risky MBS, causing the brunt of an eventual $7 billion loss at the corporate.
All the while, WesCorp directors did nothing to require concentration limits for the risky investments or to challenge what turned out to be erroneous triple-A ratings on the bonds, according to NCUA.
“The members of WesCorp’s board were aware that triple-A ratings assigned to a private label MBS by a rating agency was not a guarantee of its safety,” the NCUA claimed. “WesCorp’s investment policies therefore required a thorough review of all prospective purchases of triple-A rated private label MBS, including an analysis of their credit risk and at least after-the-fact approval of the purchases by the (asset liability committee) and the board.”
The new charges come after the court dismissed part of NCUA’s suit revolving around claims that the directors violated California’s business judgement rule in overseeing the demise of WesCorp. But NCUA asserted the court’s ruling is based on a case in which the directors had little background in banking, while the WesCorp directors were all experienced credit union CEOs.
In its latest claims, NCUA is seeking to establish that the directors violated the standard of care established in federal law.