In one of the most ambitious suits of its kind so far, Space Coast Credit Union has filed suit against several investment banks and rating agencies for the sale of $150 million of CDOs to Eastern Financial Florida Credit Union, the huge Florida credit union that failed in 2009 then was acquired by Space Coast.

It was the biggest credit union failure ever, outside of the corporates.

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

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 $150 million of CDOs to Eastern Financial, the one-time $2.4 billion Miami credit union that failed in 2009. 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, the 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 100 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 Barclays Capital over a $10 million slice of the CDOs. That suit is still pending.

Another Wall Street bank that sold about $15 million of the CDOs to Eastern Financial has agreed to settle charges. The terms and the name of the bank are confidential, sources told ASR sister publication Credit Union Journal this morning.

Space Coast, which mushroomed to $3.3 billion in assets as a result of the Eastern Financial deal, making it Florida’s second biggest credit union, is seeking $100 million in damages from the parties.

Lawyers for Space Coast did not immediately return a phone call seeking comment.

According to a report issued by National Credit Union Administration (NCUA)’s office of the Inspector General, Eastern Financial acquired $94.8 million of CDOs in March and June of 2007, bringing its CDO portfolio to $149.2 million. “Most of those CDOs deteriorated rapidly in value once purchased.” By 2009, the credit union had “essentially charged off 18 CDO investments resulting in losses of $149.2 million,” a staggering 99% of those investments.

The CDOs were bought in private placements and were not registered with the Securities and Exchange Commission, according to the Inspector General.

Eastern Financial’s losses, which amounted to $68.9 million in 2007 and $113.5 million in 2008, eventually erased all of its capital and spelled the end of the one-time airline credit union, which had survived the 1991 demise of its chief sponsor to thrive for almost two decades serving more than 1,000 select groups.

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