J. Owen Cole, president of the CLF, called the notion that the funds are missing “silly” and said the NCUA has tried to be as transparent as possible regarding the CLF because the regulator knows it's a topic of concern to credit unions.

“When we redeemed the stock, it converted from being an investment asset to cash, and that was used to satisfy whatever liabilities the estate had,” he said.

Those liabilities weren't borrowings but shares. According to its Sept. 30, 2012, 5310 report, U.S. Central had a little more than $3 billion on deposit in share accounts, including $2.8 billion worth of daily shares. 

NCUA Public Affairs Specialist John Fairbanks provided Credit Union Times information regarding U.S. Central's liquidation from the Asset Management and Assistance Center. He said U.S. Central Bridge was insolvent at the time of liquidation, coming up short by $46 million.

U.S. Central's 5310 reports support that statement. As of Sept. 30, the wholesale corporate had $3.02 billion worth of assets, including $1.17 billion in cash, and $1.85 billion in investments, which represents the CLF stock. In addition to the $2.3 million in shares, U.S. Central also reported liabilities of $2.3 million and negative undivided earnings of $44 million. 

Fairbanks also explained that a $2 billion medium-term note U.S. Central issued in 2010 came due in October 2012. However, CLF stock was not used to repay that borrowing. Rather, he said, the Temporary Corporate Credit Union Stabilization Fund covered the amount, and U.S. Central's financials were not involved.

A net gain on the TCCUSF's 2012 year-end financials also did not involve the redeemed CLF stock. According to Fairbanks, the net gain reported from the asset management estate consisted of $790 million in assessment premiums received, a $807 million improvement in estimated future cash flows on corporate legacy assets that collateralize the NCUA's guaranteed note program, $85 million in NGN guarantee fees and the $88 million transferred from the NCUSIF to corporate stabilization because the 2012 end-of-year equity ratio exceeded 1.3%.

Anticipating the NCUA's answer that the stock was swallowed up in U.S. Central's liquidation, Filson countered that the stock was CLF equity and should have been kept separate from the U.S. Central failure. 

“They say the credit union that funded it no longer exists, but remember, this was done on behalf of credit unions,” he said, referring to the original U.S. Central contribution. 

What was the intent of corporate leaders when they capitalized the CLF in 1984? Dick Johnson, former Western Corporate FCU CEO and a U.S. Central board member at the time, recalls the meeting when the decision was made that U.S. Central would capitalize the CLF. Johnson said Filson represented the NCUA at that meeting because at the time he was both director of the regulator's Office of Examinations and president of the CLF.

Johnson said he remembers the NCUA had failed to convince enough natural person credit unions to capitalize the liquidity fund, and said the NCUA risked ending up with losing face if it  failed because it had worked so hard to create it.

Corporates didn't want to fund the CLF either, Johnson said, because they would be required to contribute capital for all credit unions, whether they were corporate members or not. Johnson said he urged his fellow corporate leaders to send him a telegram voicing their opposition and directing him to vote no as a member of the U.S. Central board if the motion came up to join and fund the CLF. He recalled he received about 17 telegrams during the meeting. He said the telegrams helped him craft a compromise that required U.S. Central's corporate members to only provide capital for its members and required that the funds would be deposited in U.S. Central and not reinvested to generate income as originally proposed by the NCUA.

U.S. Central effectively dedicated half its 1% capital base member credit unions had contributed to fund the wholesale corporate to the CLF.  Half of the stock– a quarter of U.S. Central's existing capital–was placed on the CLF's books as a stock purchase. The other half was retained by U.S. Central but was on call for the NCUA to use at its disposal. Cole and Filson both said the NCUA considered the risk of having to call the other half of the capital negligible.

However, the creative accounting that set up the capitalization prevents an easy answer to question of where the stock belongs. U.S. Central used part of its capital to buy stock in the CLF, which turned around and reinvested it back into U.S. Central, a move Cole said effectively self-funded the CLF. An annual adjustment enabled U.S. Central to fund an ever increasing amount of stock to meet industry needs, Cole said.

In 2009, following U.S. Central's March conservatorship, auditors determined that the failed credit union's financial woes triggered a GAAP requirement that the impaired asset be presented on the CLF's balance sheet as a contra-equity account rather than an asset. Such an accounting treatment would have reduced CLF equity to zero and eliminated its borrowing ability. In 2009, large corporates that would have provided the most new money to refund the CLF were struggling with their own balance sheets as mortgage-backed securities losses mounted. The largest, Western Corporate FCU, was already in conservatorship. The retail corporates were in no position to cover U.S. Central's majority ownership position.

So, Cole said the CLF in August 2009 invested U.S. Central's stock in laddered U.S. Treasury securities that eventually matured around October 2012, U.S. Central's expected liquidation date. The securities were deposited back into U.S. Central as cash and processed as assets in the liquidation.

However, the transaction created a hole in U.S. Central's books. Cole said between August 2009 and October 2012, U.S. Central funded its CLF stock with cash.

Cole recalled the shuffle increased the industry's awareness of the interconnectedness between U.S. Central and the CLF.

“When that transpired, a lot of people started asking about the CLF,” he said. The NCUA board faced a tall task explaining the fund's complex structure and funding, but Cole said the group also realized the importance of keeping people informed about the steps the agency had taken in the throes of the financial crisis. The NCUA set aside a section of its website for the CLF, posting monthly financial statements and a FAQ page 

“Around that time, Filson and others started paying attention and opining about what it all meant,” Cole said. “A lot of inaccurate things were said.”

U.S. Central's liquidation is another point of contention for Filson, who has long contested the NCUA's decision to seize corporate legacy assets and assess credit unions for expected, and not real, losses.