In its complaint filed in early 2012, the $3 billion Space Coast in Melbourne, Fla., said the CDOs led to a phony demand for residential mortgage loans, which also led to creating one of the state's largest housing catastrophes.

Space Coast said creating and selling CDOs revolved around shoe-horning residential mortgage securities into Moody's and S&P's credit rating models to generate investment grade ratings, according to the CU's suit. Investors were misled because they relied on the credit ratings, the credit union said.

In May 2011, Space Coast filed a suit against Barclays saying the $10 million worth of the firm's Markov CDOs bought by Eastern Financial Florida were based on riskier synthetic assets. The purchase allegedly led to losses on the entire investment.

Last spring, the Wall Street banks told a federal court judge in Miami that Eastern Financial was warned about the risks associated with CDOs.

“Each of the 12 CDOs at issue here was offered pursuant to a separate offering circular. These offering circulars contained page after page of disclosures and disclaimers, explaining to Eastern Financial the nature and risks of the particular CDO investments, the place of each tranche within each CDO, and the credit rating expected to be assigned by the rating agencies of each tranche,” according to a joint motion from the banks and ratings agencies to dismiss the suit.

A separate U.S. Department of Justice suit filed this week against the S&P and other firms claimed the agency assigned false high ratings on the CDOs in exchange for payments from several of its Wall Street clients.