NCUA Files Suit Against Wells Fargo

The NCUA is suing Wells Fargo, alleging they violated state and federal securities laws and misrepresented the sale of securities to the now-defunct U.S. Central Federal Credit Union and Western Corporate Federal Credit Union.

While the violations were committed by Wachovia, Wachovia was sold to Well Fargo in 2008. Both failed corporates purchased around $44 million in residential mortgage-backed securities from Wachovia in 2006. U.S. Central also purchased $112 million in additional Wachovia-underwritten securities that were originated by a third party, NovaStar Mortgage Funding Trust.

Like previous lawsuits, the NCUA suit claims that Wachovia misrepresented the offering documents as a seller and underwriter. The corporates believed the associated risk of loss was minimal, when in reality, the risk was high. The purchased mortgage-backed securities dramatically declined in value, essentially rendering the corporates insolvent.

Because of these and similar unprecedented losses, several corporates failed. As credit unions know, they continue to pay for the losses brought on by these investments through the Temporary Corporate Credit Union Share Insurance Fund.

This is one more step in the NCUA’s pursuit of reclaiming billions in securities-related corporate credit union losses from other Wall Street firms, as it is also seeking nearly $2 billion in combined damages from Goldman Sachs, RBS Securities and J.P. Morgan. In November, Citigroup and Deutsche Bank Securities settled separately with the agency, with Deutsche Bank agreeing to pay the agency $145 million and Citigroup paying $20.5 million.

The NCUA continues to address loss recovers and is expected to take action in as many as nine cases.

 

Questions? Contact Director of Regulatory Advocacy Jaycee Winn: 503.350.2209, jwinn@nwcua.org.

Posted in Federal, NCUA.