Credit union regulator sues JP Morgan and RBS
The U.S. credit union regulator filed lawsuits on Monday against JPMorgan Chase & Co's JPMorgan Securities and Royal Bank of Scotland Group Plc's RBS Securities, alleging misrepresentation of investment vehicles backed by mortgages.
The National Credit Union Administration said the lawsuits seek damages in excess of $800 million and are related to the failure of five corporate credit unions.
The agency said in a statement on Monday that it may file more lawsuits in an effort to recover billions of dollars in losses related to the failure of these institutions.
NCUA's legal actions are based on ongoing investigations of individuals and entities responsible for selling these securities to the failed institutions, said NCUA Board Chairman Debbie Matz. By these actions we intend to hold responsible parties accountable.
JPMorgan and RBS declined to comment.
The lawsuits, filed in U.S. District Court in Kansas, allege that the firms made numerous misrepresentations in the offering documents for the securities.
These misrepresentations caused the corporate credit unions that bought the notes to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial, NCUA said.
Corporate credit unions provide services to retail credit unions including lending, as well as check and payment clearance services.
The wholesale credit unions have experienced more troubles than their retail counterparts because they did not face the same restrictions on permitted investments, leading to big losses during the financial crisis.
The NCUA seized three large corporate credit unions in 2010 after seizing two in 2009.
The five institutions are Members United Corporate Federal Credit Union of Warrenville, Illinois; Southwest Corporate Federal Credit Union of Plano, Texas; Constitution Corporate Federal Credit Union of Wallingford, Connecticut; U.S. Central Corporate Federal Credit Union of Kansas; and Western Corporate Federal Credit Union of California.
The NCUA said in September last year that the five had $50 billion in troubled assets on their books that the agency would try to sell.
Matz said then the seizure will ultimately cost the industry between $7 billion and $9 billion and NCUA will collect this amount from credit unions over the next 10 years.
The lawsuit against RBS involves about $565 million in claims while the lawsuit against JPMorgan involves about $278 million in claims, the agency spokesman said.
Any money recovered by the lawsuits would go toward reducing the cost to credit unions of covering the failure of the five institutions, the regulator said.
The cases are National Credit Union Administration v. JP Morgan Securities LLC, U.S. District Court, District of Kansas, No. 11-cv-2341 and National Credit Union Administration v. RBS Securities Inc., U.S. District Court, District of Kansas, No. 11-cv-2340.
(Reporting by Dave Clarke; Editing by Tim Dobbyn and Gerald E. McCormick)
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