The National Credit Union Administration has filed suit against Royal Bank of Scotland subsidiary RBS Securities, Inc. for selling risky mortgage-backed securities to Western Corporate Credit Union that eventually lead to the credit union’s collapse.
The action is now the third brought on by the NCUA in a federal court, though upwards of ten additional suits are expected to follow. The newest suit is seeking damages of more than $629 million from RBS Securities for misrepresenting the health of securities sold to WesCorp.
According to the suit, at the time RBS sold mortgage-backed securities to WesCorp the credit union had been under the impression that the risk associated with the securities were minimal when they were actually significant. Other banks in previous NCUA suits filed this year include Goldman Sachs, Merrill Lynch, Citigroup and JP Morgan Chase. Two similar suits were filed on June 20 with a Kansas federal court against RBS Securities and JP Morgan Securities LLC.
WesCorp was seized by federal regulators in March 2009. Other credit unions believed to have failed as a result of being sold risky securities are U.S. Central Federal Credit Union (which also failed in 2009), Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union, and Constitution Corporate Federal Credit Union, which all failed in 2010.
The NCUA inherited about $25 billion worth of mortgage-backed securities as a result of the failures.
This past March the NCUA announced its intent to sue a number of the nation’s largest banks for misrepresenting the health of securities sold to now-failed credit union unless the banks refunded over $5o billion worth of mortgage-backed securities. Some 34 credit unions failed between 2009 and 2010, according to the NCUA, which regulates, charters and supervises all federally-chartered credit unions in the United States.
UPDATE: As of July 20 the NCUA had only filed suit against JP Morgan Securities and RBS Securities.