Saying that it failed to disclose the risks to two now-defunct corporate credit unions, the NCUA on Tuesday filed suit against the company formerly known as Wachovia Securities.
The suit alleges that residential mortgage backed securities the firm sold U.S. Central and WesCorp were "significantly riskier'' than represented in the offering documents and the securities were "destined from inception to fail."
U.S. Central bought $43.9 million in RMBS from Wachovia and $78.1 million in RMBS underwritten by Wachovia. WesCorp bought $44.3 million of RMBS from Wachovia, the suit said.
Since it was purchased by Wells Fargo, the firm is now known as Wells Fargo Securities.
The lawsuit, which was filed in U.S. District Court in Kansas, is the latest in a series of lawsuits the agency has filed against firms that sold RMBS to corporate credit unions.
"The NCUA continues to do everything within our authority to seek maximum recoveries and ensure that those who caused the problems in wholesale credit unions pay for the losses incurred by retail credit unions," NCUA Chairman Debbie Matz said in a statement. "By filing these suits, we intend to hold responsible parties accountable for their actions."
The NCUA already has sued J.P. Morgan Securities, RBS Securities and Goldman Sachs for not fully disclosing the risks when it sold RMBs to the corporates. The collapse of the housing market caused the value of those securities to plummet, leading to massive losses to the corporates.
That convergence of events required the NCUA to rescue some of them, with the help of a loan from the Treasury Department. The credit union system is paying for the rescue through annual assessments. This year's assessment was 25 basis points.
On Nov. 14, the agency announced it had reached settlements totaling $165.5 million with Citigroup and Deutsche Bank Securities over the sales of residential mortgage-backed securities to the five corporate credit unions that failed.
The settlements, in which the banks admitted no guilt, were for $20.5 million from Citigroup and $145 million from Deutsche Bank Securities. The agency reached those settlements without filing lawsuits.
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