The ""National Credit Union Administration"":http://www.ncua.gov/ (NCUA) filed a lawsuit against ""Goldman Sachs & Co."":http://www2.goldmansachs.com/ in hopes of recovering losses it incurred as the result of two failed credit unions - U.S. Central and Western Corporate federal credit unions.[IMAGE]
According to the complaint filed Tuesday in a California district court, prior to their liquidation, U.S. Central and Western Corporate were the two largest corporate credit unions in the country.
The NCUA complains that Goldman Sachs violated securities laws and misrepresented the risk involved in certain residential mortgage-backed securities (RMBS), ultimately leading to the demise of the two credit unions, according to the NCUA.
The NCUA is an independent government agency that charters and regulates federal credit unions. The organization is also responsible for maintaining a National Credit Union Share Insurance Fund and Temporary Corporate Credit Union Stabilization Fund.
The NCUA hopes to acquire more than $491 million from Goldman Sachs to replenish these funds.
""Because the mortgages in the pools collateralizing the RMBS were largely underwritten without adherence to the[COLUMN_BREAK]
underwriting standards in the Offering Documents, the RMBS were significantly riskier than represented in the Offering Documents,"" the NCUA stated in a court filing.
""Indeed, a material percentage of borrowers whose mortgages comprised the RMBS were all but certain to become delinquent or default shortly after origination,"" the NCUA continued.
Combined with three other lawsuits it has initiated, the organization seeks a total of $2 billion in similar cases.
The NCUA's three other suits involve a complaint against JPMorgan Securities, LLC and two filings against RBS Securities.
""NCUA continues to carry out our responsibility to do everything reasonable in our power to seek maximum recoveries,"" said NCUA Board Chairman Debbie Matz. ""By these actions we intend to hold responsible parties accountable.
""Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions,"" Matz said.
The NCUA says it may file additional suits regarding securities purchases.
In addition to U.S. Securities and Western Corporate, the NCUA believes securities purchases also led to the failure of Southwest Corporate, Members United Corporate, and Constitution Corporate - all of which are now in NCUA conservatorship.
""While the credit union industry generally fared better than the rest of the financial world over the last few years, the corporate credit union collapse remains the largest crisis ever faced by credit unions,"" Matz said.
""Fortunately, given the liquidity in the system, the average consumer is insulated from these past losses,"" she added. ""However, it remains our statutory duty to replenish the insurance fund that protects consumer deposits by seeking recoveries.""