Wachovia becomes the latest financial institution to face the National Credit Union Administration (NCUA) in court after the agency filed suit alleging violations of federal and state securities laws and misrepresentations in the sale of securities to now-failed U.S. Central FCU and Western Corporate FCU.
The suit, which was filed in the Federal District Court for the District of Kansas, is tied to actions that North Carolina-based bank Wachovia took before it was taken over by Wells Fargo in a government-arranged sale in 2008.
U.S. Central and WesCorp in 2006 each purchased around $44 million in residential mortgage-backed securities from Wachovia, and U.S. Central bought an additional $112 million in Wachovia-underwritten securities that were originated by a third party, NovaStar Mortgage Funding Trust.
The NCUA suit claims that Wachovia as a seller and underwriter made several material misrepresentations in the offering documents, leading the corporates to believe the risk of loss associated with their investments was minimal, when in fact the risk was substantial. The mortgage-backed securities experienced dramatic, unprecedented declines in value, effectively rendering the corporates insolvent, the agency added.