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Lawsuit again U.S. Central Credit Union alleges securities fraud
By: Dan Margolies
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(October 23, 2009 - Friday) - The suit was filed Oct. 20 in federal court in Alabama by Corporate America Credit Union. It alleges that U.S. Central forced it to buy $9 million in “worthless securities” just weeks before regulators made U.S. Central write down its mortgage-backed securities by $1.2 billion and injected $1 billion into the ailing institution. On March 20, less than three months after Corporate America Credit Union purchased the securities, the National Credit Union Administration placed U.S. Central into conservatorship and replaced its chief executive and its directors. Corporate credit unions, though little known, are linchpins of the credit union industry, serving much of the same role for the nation’s 8,200 retail credit unions as the Federal Reserve does for banks. U.S. Central sat atop the corporate credit union pyramid, providing investment, liquidity, lending, payment and cash management services to its 26 corporate credit union members.
Corporate America Credit Union, near Birmingham, Ala., is one of those 26. Its suit basically alleges that the defendants hid U.S. Central’s dire financial situation from Corporate America when soliciting it to buy $9 million worth of so-called paid-in capital shares in U.S. Central. “Effectively what we’re alleging is that the supporting documents that a lot of people, including Corporate America, relied on indicated that U.S. Central was in a better financial position than it was at that time,” said Thomas Bonds, president and chief executive of Corporate America. Named as defendants in the suit are former U.S. Central President and Chief Executive Francis Lee, who was replaced when the credit union was put into conservatorship; two other U.S. Central officers; nine members of the credit union’s board of directors; and the accounting firm of Rubin Brown LLP. The suit also names “fictitious defendants 1-10” pending identification of “additional defendants who had responsibility for U.S. Central’s misleading statements….”
U.S. Central is not named because it is under conservatorship.
Todd Pleimann, managing partner of RubinBrown’s Kansas City office, declined to comment on the suit Thursday, saying the firm does not discuss client matters. In its suit, Corporate America alleges RubinBrown valued the paid-in capital shares issued by U.S. Central at more than $450 million. Only two business days later, however, Moody’s Investor Services, Investors Service downgraded U.S. Central’s long-term debt “and suggested that the company’s long- and short-term debt might warrant further downgrades,” according to the suit. The suit states that U.S. Central and its officials admitted that “their only hope for survival” when they solicited Corporate America’s investment in the fall of 2008 was the Treasury Department’s “Troubled Assets Relief Program,” commonly known as TARP.
“But the Officer and Director Defendants never disclosed to (Corporate America) that their $100-$150 million estimate of write downs for 2008 was dependent upon a government bailout,” Corporate America alleges.
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