RBS and Barclays sued in US case over collapse of credit unions
Wednesday 25 September 2013
Barclays and Royal Bank of Scotland have become embroiled in a US lawsuit over the sale of almost $2.4bn (£1.5bn) worth of mortgage-backed securities to two credit unions that later failed.
The lenders are among nine named in proceedings in New York over the collapse of the Southwest and Members United unions.
JP Morgan, which was fined $920m over its "London Whale" scandal last week, is also implicated, as is Goldman Sachs.
However, it is Morgan Stanley which bears the brunt of the legal action, with Southwest and Members United having paid more than $416m to the lender and more than $1.9bn for securities sold by the other defendants.
The National Credit Union Administration (NCUA) is behind the latest case to rock the banking sector.
Its boss, Debbie Matz, said: "We continue to pursue accountability and recovery in the wake of billions of dollars in sales of faulty securities that led to the collapse of several corporate credit unions and handed the industry the costly bill of paying for the losses. All the credit unions we supervise and insure are sharing those costs. The people who are responsible should be required to shoulder that burden, as well."
The NCUA claims the banks made misrepresentations in connection with the underwriting and subsequent sale of the securities. It also alleges that the offering documents of the securities sold to the failed corporate credit unions contained statements that were not true or omitted material facts. This meant the securities were significantly riskier than represented, it added.
The agency said it had already settled claims worth more than $335m with Citigroup, Deutsche Bank Securities, HSBC and Bank of America.
"As liquidating agent for Southwest and Members United corporate credit unions, NCUA has a statutory duty to seek recoveries from responsible parties in order to minimise the cost of any failure to its insurance funds and the credit union industry," it added.
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