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NCUA Sues J.P. Morgan, WaMu Capital and Others over $2.2 Billion in Faulty Securities

​Legal Action is the Agency’s 10th against Wall Street Investment Firms

ALEXANDRIA, Va. (Jan. 4, 2013) – The National Credit Union Administration (NCUA) has filed suit in Federal District Court in Kansas against J.P. Morgan Securities as successor-in-interest to Washington Mutual Bank, alleging violations of federal and state securities laws in the sale of  $2.2 billion in mortgage-backed securities to three corporate credit unions.

Other defendants include WaMu Capital Corp., Long Beach Securities Corp., and WaMu Asset Acceptance Corp.
 
“The damage caused by the actions of firms like Washington Mutual has been extremely expensive to contain and repair, and that job isn’t finished, yet,” said NCUA Board Chairman Debbie Matz. “All the credit unions we supervise and insure have had to share this burden, so it’s only right that the people who caused the damage be required to pick up that burden, as well.”

NCUA’s suit alleges the firms made misrepresentations in connection with the underwriting and subsequent sale of mortgage-backed securities to U.S. Central, Western Corporate and Southwest Corporate federal credit unions. All three corporate credit unions became insolvent and were subsequently placed into NCUA conservatorship and liquidated as a result of losses from these faulty securities. These failures caused significant losses to the credit union system.

J.P. Morgan Securities acquired Washington Mutual in 2008.

The complaint alleges the firms made numerous misrepresentations and omissions of material facts in the Offering Documents of the securities sold to the failed corporate credit unions. The complaint states underwriting guidelines in the Offering Documents were “systematically abandoned,” and the misrepresentations caused the credit unions to believe the risk of loss was minimal. In fact, these securities were “significantly riskier than represented in the Offering Documents” and that the faulty securities “were destined from inception to perform poorly.”
 
NCUA has similar actions pending against Barclays Capital, Credit Suisse, Goldman Sachs, J.P. Morgan Securities, RBS Securities, UBS Securities, Wachovia and Bear, Stearns.

NCUA was the first federal regulatory agency for depository institutions to recover losses from investments in faulty securities on behalf of failed financial institutions. To date, the agency has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities and HSBC.
 
As liquidating agent for the three 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.

Recoveries from these legal actions will further reduce the total losses resulting from the failure of the three corporate credit unions. Losses from those failures must be paid from the Temporary Corporate Credit Union Stabilization Fund. Expenditures from this fund must be repaid through assessments against all federally insured credit unions, so any recoveries would help reduce future assessments on credit unions.

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

The complaint is available on NCUA’s website:
www.ncua.gov/News/Press/NW20130104MorganComplaint.pdf

 



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 U.S. Government, NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of more than 97 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions. At MyCreditUnion.gov and Pocket Cents, NCUA also educates the public on consumer protection and financial literacy issues..

--NCUA--

National Credit Union Administration

Office of Public & Congressional Affairs

703.518.6330
pacamail@ncua.gov

Contacts:

John Fairbanks
Office: 703.518.6336
jfairbanks@ncua.gov

Ben C. Hardaway
Office: 703.518.6333
Mobile: 703.298.5223 bhardaway@ncua.gov

Kenzie Snowden
Office: 703.518.6334
ksnowden@ncua.gov

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