The National Credit Union Administration (NCUA) has filed suit in Federal District Court in Kansas against Morgan Stanley & Comopany Inc. and other firms, alleging violations of federal and state securities laws in the sale of more than $566 million in mortgage-backed securities (MBS) to the U.S. Central and WesCorp corporate credit unions. “Firms like Morgan Stanley sold securities that turned out to be faulty, triggering a crisis in the credit union industry that has been extremely expensive to contain and repair, and credit unions are still paying the tab,” said NCUA Board Chairman Debbie Matz. “All the credit unions we supervise and insure are sharing this burden. The people who are accountable, those who precipitated this crisis, should be required to shoulder 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 and WesCorp corporate federal credit unions. Both 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 subsequently caused significant losses to the credit union system. The complaint alleges the offering documents of the securities sold to the failed corporate credit unions contained statements of material fact that were not true or omitted material facts. The originators systematically abandoned the stated underwriting guidelines in the offering documents, according to the complaint, and the securities were significantly riskier than represented. The result, complaint says, was that the 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, Bear, Stearns, and Washington Mutual Bank. 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 $335 million with Citigroup, Deutsche Bank Securities, HSBC, and Bank of America. 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.