The National Credit Union Administration announced on Friday that it filed suit earlier this month against Morgan Stanley and five other firms that allegedly sold faulty residential mortgage-backed securities to now-defunct credit unions.
The filing follows a recent appeal victory in which the 10th Circuit Court of Appeals sided with NCUA in its case against several major Wall Street firms over RMBS sales to U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, which were placed in conservatorship by the NCUA in March 2009.
Earlier this year, a federal judge in Kansas dismissed NCUA’s suit against Barclays Capital, saying the agency did not file the suit in a timely manner. The appeals court ruled, however, that a federal “extender” statute, which allows the agency more time to file suit, does apply towards the claims against the banks.
NCUA alleges that the banks disregarded underwriting guidelines in their offering documents and that the securities were much more risky than represented, Credit Union Times reports.
“Firms like Morgan Stanley sold securities that turned out to be faulty, triggering a crisis in the credit union industry that has been extremely expensive to contain and repair, and credit unions are still paying the tab,” NCUA Board Chairman Debbie Matz said, according to Credit Union Times. “All the credit unions we supervise and insure are sharing this burden. The people who are accountable, those who precipitated this crisis, should be required to shoulder that burden, as well.”
NCUA has other suits pending against Barclays Capital, Bear Stearns, Credit Suisse, Goldman Sachs, JPMorgan Securities, RBS Securities, UBS Securities, Wachovia and Washington Mutual Bank.
The agency has reached $335 million in settlements with Bank of America, Citigroup, Deutsche Bank Securities and HSBC.