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NCUA Seeks $491 Million in Damages From Goldman Sachs Over MBS Misrepresentations

Aug 10, 2011

The National Credit Union Administration (NCUA) has filed a lawsuit in California against Goldman Sachs alleging violations of federal and state securities laws, as well as misrepresentations in the sale of mortgage-backed securities (MBS) to now-failed U.S. Central and Western Corporate federal credit unions. This action seeks damages in excess of $491 million from Goldman Sachs, bringing the total sought in the four lawsuits filed to date against Goldman Sachs to nearly $2 billion. “NCUA continues to carry out our responsibility to do everything reasonable in our power to seek maximum recoveries,” said National Credit Union Administration (NCUA) Board Chairman Debbie Matz. “By these actions we intend to hold responsible parties accountable. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.” The MBS experienced dramatic declines in value, effectively rendering five corporates insolvent. The combined suits are the culmination of lengthy investigations into the circumstances surrounding the purchases of these securities. As liquidating agent for the failed corporate credit unions, NCUA has a statutory duty to seek recoveries from responsible parties to minimize cost to its insurance funds and the credit union industry. NCUA’s new suit against Goldman Sachs claims the sellers and underwriters of the questionable securities made numerous material misrepresentations in the offering documents. These misrepresentations caused the corporate credit unions to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial. This lawsuit follows three similar legal proceedings, two filed in the Federal District Court of Kansas on June 20 against J.P. Morgan Securities LLC, and RBS Securities, and one in the Federal District Court in Central California also against RBS July 18.  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 investments. “While the credit union industry generally fared better than the rest of the financial world over the last few years, the corporate credit union collapse remains the largest crisis ever faced by credit unions,” said Matz. “Fortunately, given the liquidity in the system, the average consumer is insulated from these past losses. However, it remains our statutory duty to replenish the insurance fund that protects consumer deposits by seeking recoveries.”
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Aug 10, 2011
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