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NCUA Suing Securities Firms to Recover Billions

Recoveries will benefit all federally insured credit unions

ALEXANDRIA, Va. (June 20, 2011) – The National Credit Union Administration filed two
suits today against securities firms alleging violations of federal and state securities laws and
misrepresentations in the sale of hundreds of securities. Additional law suits may follow in order
to recover losses from the purchase of securities that caused the failures of five, large wholesale
credit unions.

As liquidating agent for the failed corporate credit unions, NCUA has a statutory duty to seek
recoveries from responsible parties in order to minimize the cost of any failure to its insurance
funds and the credit union industry. The first two suits were filed today against J.P. Morgan
Securities, LLC, and RBS Securities, Inc.

“NCUA has a responsibility to do everything in our power to seek maximum recoveries from
those involved in the issuing, underwriting and sale of the faulty securities that resulted in the
failures of five of the largest wholesale credit unions,” said NCUA Board Chairman Debbie
Matz. “NCUA’s legal actions are based on ongoing investigations of individuals and entities
responsible for selling these securities to the failed institutions. By these actions we intend to
hold responsible parties accountable. The first two actions involve damages in excess of $800
million. We expect to file additional actions and seek a total amount of damages in the billions of
dollars. Those who caused the problems in the wholesale credit unions should pay for the losses
now being paid by retail credit unions.”

NCUA’s suits claim the sellers, issuers and underwriters of the questionable securities made
numerous material misrepresentations in the offering documents. These misrepresentations
caused the corporate credit unions that bought the notes to believe the risk of loss associated with
the investment was minimal, when in fact the risk was substantial. The corporate credit unions
invested in mortgage-backed securities that experienced dramatic, unprecedented declines in
value, effectively rendering the institutions insolvent. These suits are the culmination of lengthy
investigations into the circumstances surrounding the purchases of these securities.

NCUA officials are also discussing the losses with a number of other sellers, issuers and
underwriters. If NCUA is unable to reach reasonable settlements on behalf of the liquidated
credit unions with these additional parties, the agency will likely bring additional lawsuits.

Any recoveries from these legal actions would reduce the total losses resulting from the failure
of the five corporate credit unions. Losses from those failures must be paid from the Temporary
Corporate Credit Union Stabilization Fund or the National Credit Union Share Insurance Fund.
Expenditures from these funds must be repaid through assessments against all federally insured
credit unions. Thus, any recoveries would help to reduce the amount of future assessments on
credit unions.

In addition to these suits, NCUA has taken a number of actions to mitigate losses to the credit
union system from these corporate failures. Among the actions taken:

  • After placing these five corporate credit unions into liquidation, NCUA re-securitized the
    problematic mortgage-backed securities and sold them in the marketplace with a
    government-backed guarantee. This action garnered approximately $28.3 billion in proceeds.
  • NCUA established a temporary share guarantee for shares on deposit at corporate credit
  • NCUA established bridge corporate credit unions in conservatorship to ensure the services
    provided to consumer credit unions continued during the resolution and transition period.
  • NCUA is working with members of the bridges to transition services to new entities where

The five wholesale credit unions placed into NCUA conservatorship and now liquidated are:
U.S. Central, Western Corporate, Southwest Corporate, Members United Corporate, and
Constitution Corporate.

Corporate credit unions are wholesale credit unions that provide various services to retail credit
unions, which in turn serve consumers, or “natural persons.” Natural person credit unions rely on
corporate credit unions to provide them such services as check clearing, electronic payments and

NCUA filed the first two suits in the Federal District Court for the District of Kansas, the former
headquarters of U.S. Central. To obtain copies of the complaints, visit the respective courts’
websites or the Pacer reporting service. The complaints also will be posted to NCUA’s website at
the following links: J. P. Morgan Complaint; RBS Complaint.

NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the United States, NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of more than 101 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions. At and Pocket Cents, NCUA also educates the public on consumer protection and financial literacy issues.


National Credit Union Administration

Office of Public & Congressional Affairs



John Fairbanks
Office: 703.518.6336
Mobile: 571.438.0801

Ben C. Hardaway
Office: 703.518.6333
Mobile: 703.298.5223

Kenzie Snowden
Office: 703.518.6334

"Protecting credit unions and the consumers who own them through effective regulation"