A federal magistrate has ordered Space Coast Credit Union to a non-binding mediation session with lawyers from five Wall Street banks and two rating agencies regarding the credit union’s $100-million claim related to a failed investment the banks sold Eastern Financial Florida Credit Union, a failed Miami credit union acquired by Space Coast in 2009.

The judge’s order states the parties must agree to a mediator within 14 days and if there is no agreement the clerk of the court shall appoint a mediator. The mediation sessions shall be confidential and privileged.

If mediation is not conducted, the case may be stricken from the trial calendar and other sanctions may be imposed, according to the court order.

Space Coast, Florida’ second-largest credit union as a result of the Eastern Financial merger, has sued the Wall Street parties over collateralized debt obligations – mortgage derivatives known as CDOs created by combining assets from other mortgage derivatives – sold to Eastern Financial that failed with months after the deals, prompting the failure of the one-time $2.4-billion credit union.

The suit, filed in U.S. District Court for the Southern District of Florida, names Merrill Lynch (now a unit of Bank of America); Bear Stearns (now a unit of JPMorgan Chase); Wachovia Securities (now part of Wells Fargo Securities); UBS Securities; Barclays Capital; Moody’s Investors Service; Standard & Poor’s; and, Richard Fuld, the former CEO of Lehman Brothers, the investment banking giant that failed in 2008. Fuld has since been removed from the case.

The suit by Space Coast claims the Wall Street players engaged in common law fraud, negligent misrepresentation, unjust enrichment, and constructive trust in the sale of the CDOs. Eastern Financial was the only natural person credit union in the country to invest in CDOs, by special permission of the Florida credit union regulator.

Eastern Financial, a 72-year-old credit union originally chartered to serve employees of now-defunct Eastern Airlines, lost almost its entire investment on the CDOs and was subsequently acquired by Space Coast, a $1.6-billion credit union 175 miles north along Florida’s Space Coast, in Melbourne.

The claims in the suit are similar to those in a separate action filed in 2010 by Space Coast against Barclay’s Capital over a $10 million slice of the CDOs. That suit is still pending.

Another Wall Street bank that sold about $15 million of CDOs to Eastern Financial has agreed to settle charges. The terms and the name of the bank are confidential.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.