Wednesday, September 1, 2010

NCUA Amends Complaint Against WesCorp

The National Credit Union Administration Board, in its role as Conservator of Western Corporate Federal Credit Union (“WesCorp”), amended its complaint against the former board of directors and officers of the failed corporate credit union alleging breach of fiduciary duties, gross negligence, fraud, and unjust enrichment. NCUA contends that breach of fiduciary duties resulted in massive losses at WesCorp. Click here to read the complaint.

Here are some of the highlights from the complaint.

In paragraph 113, the complaint states that "the Director Defendants and the Officer Defendants breached these duties of care by, among other things, departing from the traditional corporate credit union business model and following a strategy of maximizing investment income by leveraging WesCorp’s balance sheet and developing a large portfolio concentration of private label MBS, particularly Option ARM MBS. In doing so, they failed to adequately inform themselves of the additional credit risk created and failed to take steps to mitigate that credit risk."

Paragraph 120 cites that "each of the Director Defendants and the Officer Defendants was grossly negligent in performing his or her duties in allowing WesCorp to pursue a highly leveraged strategy of investing in private label MBS without understanding the risks of a high concentration of such securities in its portfolio and without taking steps to mitigate those risks through appropriate concentration limits and investment policies."

Furthermore, paragraph 121 cites that the defandants were grossly negligent because they ignored the prospect that real estate prices would fall and that they allowed WesCorp to borrow huge sums of money and invest the proceeds in private label MBS, especially Option ARM securities.

Paragraphs 126 and 127 point out that Swedberg and Siravo mislead the board about the intent of the original Supplemental Executive Retention Plans (SERPs), the necessity for the changes and the true nature of the SERP amendments.

Paragraphs 144 through 147 allege that the former Chief Financial Officer was not entitles to certain payments in excess of $1.4 million and thus was unjustly compensated.

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