NCUA sues Goldman Sachs for $491 million

Bank mis-sold mortgage-backed securities to credit unions, regulator says

The National Credit Union Administration (NCUA) is suing Goldman Sachs for $491 million.

The lawsuit alleges violations of federal and state securities laws, as well as misrepresentations regarding the sale of securities to the now-failed US Central and Western Corporate federal credit unions.

NCUA claims the sellers and underwriters of the questionable securities made numerous misrepresentations in the offering documents to the two corporate credit unions. This led the unions to believe the risk of loss associated with the investment was minimal, when it was in fact substantial – the two credit unions suffered large losses and eventually failed as a result.

This lawsuit follows three other similar suits filed by the NCUA: one against Royal Bank of Scotland (RBS) filed in July, another against JP Morgan Securities filed in June and the third against RBS Securities also filed in June. The NCUA says that it could file up to six further actions against banks involved in the failure of US Central, Western Corporate and three other credit unions: Southwest Corporate, Members United Corporate and Constitution Corporate.

The combined suits are the culmination of lengthy investigations.

US Central and Western Corporate both went into conservatorship in March 2009; the other three followed in September 2010. All five are wholesale credit unions, prividing services such as cheque clearing and payment processing to retail credit unions around the US. NCUA is the liquidating agent for the failed credit unions.

NCUA seeks recoveries from responsible parties to minimise costs to its insurance funds and the credit union industry. Such recoveries would reduce the total losses resulting from the failure of the two unions.