LOS ANGELES (CN) - Executives at Western Corporate Federal Credit Union lost billions of dollars on a "wildly irresponsible Wall Street gambling spree in mortgage-backed securities," a teachers credit union and six other credit unions claim. They also sued Riskspan, which advised WesCorp on the disastrous investment strategy.
Directors of Western Corporate were supposed to protect members' dollars by investing them conservatively in liquid assets. Instead, the execs threw the money into risky, highly leveraged mortgage-backed securities, the seven credit union plaintiffs say in Superior Court.
The plaintiffs say the risky investing and unnecessary leveraging of assets cost them about $3 million, as the defendants borrowed nearly $10 billion from nonmember sources, plunging Western Corporate into the black hold of mortgage-backed securities.
Mortgage-backed securities accounted for almost 80 percent of the corporate union's entire investment portfolio, the National Credit Union Association found in April 2008.
The reckless investment strategy forced the union to seek an emergency infusion of funds from the National Credit Union Association in 2008. The emergency funds were not enough to keep Western Corporate afloat and the union remains under the National Credit Union Association's conservatorship.
Corporate credit unions act as "credit unions to credit unions," and are nonprofit, concerned only with saving members' money.
The plaintiffs seek damages for negligence and breach of fiduciary duties.
The plaintiffs are the 1st Valley Credit Union, Cascade Federal Credit Union, Glendale Area Schools Federal Credit Union, Kaiperm Northwest Federal Credit Union, Northwest Plus Credit Union, Stamford Federal Credit Union, and Tulare County Federal Credit Union.
Defendants include 25 former and continuing officers of WesCorp, and Riskspan Inc., a consulting company hired by WesCorp.The plaintiffs are represented by David Parisi with Parisi & Havens of Sherman Oaks.