Monday, January 7, 2013

NCUA Sues J.P. Morgan, WaMu Capital, Others for $2+ Billion in Faulty Securities

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NCUA Sues J.P. Morgan, WaMu Capital and Others over $2.2 Billion in Faulty Securities

Legal Action is the Agency’s 10th against Wall Street Investment Firms

NCUA has similar actions pending against Barclays Capital, Credit Suisse, Goldman Sachs, J.P. Morgan Securities, RBS Securities, UBS Securities, Wachovia, and Bear, Stearns.

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 $170 million with Citigroup, Deutsche Bank Securities and HSBC.

ALEXANDRIA, Va. (Jan. 4, 2013) – The National Credit Union Administration (NCUA) has filed suit in Federal District Court in Kansas against J.P. Morgan Securities as successor-in-interest to Washington Mutual Bank, alleging violations of federal and state securities laws in the sale of $2.2 billion in mortgage-backed securities to three corporate credit unions.

Other defendants include WaMu Capital Corp., Long Beach Securities Corp., and WaMu Asset Acceptance Corp.

“The damage caused by the actions of firms like Washington Mutual has been extremely expensive to contain and repair, and that job isn’t finished, yet,” said NCUA Board Chairman Debbie Matz. “All the credit unions we supervise and insure have had to share this burden, so it’s only right that the people who caused the damage be required to pick up 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, Western Corporate and Southwest Corporate federal credit unions. All three 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 caused significant losses to the credit union system.

J.P. Morgan Securities acquired Washington Mutual in 2008.

The complaint alleges the firms made numerous misrepresentations and omissions of material facts in the Offering Documents of the securities sold to the failed corporate credit unions. The complaint states underwriting guidelines in the Offering Documents were “systematically abandoned,” and the misrepresentations caused the credit unions to believe the risk of loss was minimal. In fact, these securities were “significantly riskier than represented in the Offering Documents” and that the faulty securities “were destined from inception to perform poorly.”

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