Legal Recoveries from the Corporate Crisis

As both the conservator and liquidating agent for each of the five failed corporate credit unions, the Board has a fiduciary responsibility to collect debts and obligations owed the corporate credit unions. That duty includes using reasonably available legal means to seek recoveries from parties that contributed to the corporate credit union losses.

To fulfill this duty, the Board as liquidating agent has filed 26 complaints in federal courts in New York, Kansas, and California against 32 defendants. The Board filed its first two lawsuits against securities underwriters in 2011. Shortly thereafter, the Board filed another seven lawsuits against various Wall Street securities firms. The Board, as liquidating agent, also filed 13 more lawsuits against securities firms and banks, alleging violations of federal and state securities laws and of federal and state antitrust laws based on manipulation of the London Interbank Offered Rate. The Board also filed four lawsuits against banks for failing to fulfill their duties as trustees for certain residential mortgage-backed securities trusts.

Thus far, the NCUA’s legal efforts have been successful. The NCUA was the first federal financial depository institutions regulator to recover losses on behalf of failed entities from the Wall Street securities firms that sold investments in faulty residential mortgage-backed securities. As of June 30, 2017, the Board’s legal strategy has recovered more than $5.1 billion. Recovery efforts continue with ongoing litigation.

The Federal Credit Union Act and the NCUA's Rules and Regulations require that, net proceeds from these recoveries are used to pay claimants against the liquidated corporate credit unions, including the Temporary Corporate Credit Union Stabilization Fund. These payments to the Stabilization Fund have permitted repayment of the NCUA’s outstanding U.S. Treasury borrowings and have decreased the amount credit unions ultimately pay for costs of resolving the five failed corporate credit unions. Repayment of borrowed amounts with interest also ensures no cost to U.S. taxpayers. The NCUA repaid the Treasury in full on Oct. 31, 2016.

Hiring of Outside Counsel and Legal Fee Structure

Because of the unique and highly complex nature of these securities lawsuits, the NCUA determined it had neither the in-house resources nor expertise to pursue such litigation independently. As a result, the Board as liquidating agent entered into a contingency fee arrangement with Korein Tillery and Kellogg, Hansen, Todd, Figel, & Frederick PLLC, two law firms that possessed the requisite resources and securities and litigation expertise. The Board’s decision to use a contingency fee arrangement accomplished the following objectives:

  • Ensuring credit union dollars would not be spent on significant legal expenses with a highly uncertain payoff;
  • Preserving significant potential upside for the liquidating agents and the credit union system; and
  • Shifting the risk of recovering little or nothing to the law firms representing the liquidating agents.

This fee arrangement allowed the Board as liquidating agent to pursue legal action against these securities firms without the NCUA increasing assessments on credit unions already under considerable financial strain. Without this fee arrangement, which shifted most of the risk of these legal actions to outside counsel, there would have been no legal investigation of potential claims, no litigation and no legal recoveries.

Statements about the NCUA’s Litigation Strategy from Former NCUA Board Members and Senior Officials

Additional Resources

Office of Inspector General, Letter on NCUA’s Contingency Fee Arrangement
Legal Opinion of Charles J. Cooper of Cooper & Kirk

Total Recoveries, Expenses and Fees to Date

The legal services agreement between the liquidating agents and the two lead law firms provides that the lead firms receive 25 percent of net recoveries. Net recoveries are calculated by subtracting the firms’ and the liquidating agents’ expenses, such as vendor and consultant expenses, expert witness fees and travel costs for depositions and hearings, from the gross amount of settlement or judgment proceeds.

As of June 30, 2017, the NCUA’s legal efforts have yielded recoveries of more than $5.1 billion. To date, the NCUA has incurred contingency fees of $1,214,634,208. This is equivalent to 23.5 percent of total recoveries.

Because the liquidating agents have sometimes recovered amounts from multiple underwriters within a short period, the agency has not always made the payments to the firms on a lawsuit-specific basis. The figures that appear in the Detailed Breakdown of NCUA Legal Expenses per Settlement, however, allocate a payment amount to each settlement or judgment.

In addition, three of the recoveries detailed include amounts separately designated as awards of attorneys’ fees. These three recoveries took the form of offers of judgment. An award of attorneys’ fees is a remedy available to a prevailing party in a securities lawsuit. These amounts are included in the gross recoveries, but the NCUA did not pay the firms a contingency fee on these amounts. Instead, the NCUA paid Kellogg Hansen $33,715 in additional hourly fees for work required to obtain these awards for the liquidating agents. These additional hourly fees are included in the total amount of fees specified below.

  • Aggregate Gross Recovery5,166,986,958
  • Total Kellogg Huber Fees — 607,333,962
  • Total Kellogg Huber Expenses — 5,132,352
  • Total Paid to Kellogg Huber — 612,466,314
  • Total Korein Tillery Fees — 607,300,246
  • Total Korein Tillery Expenses — 3,289,034
  • Total Paid to Korein Tillery — 610,516,811
  • Total NCUA Expenses — 96,516,811
  • Total Attorneys' Fees1,214,634,208
  • Total Expenses to Firms8,421,386
  • Total Paid to Firms:1,223,055,594
  • Aggregate Net Recovery3,847,414,553

Lawsuits Filed by the NCUA

Complaints were filed against defendants in multiple jurisdictions, as determined by which corporate credit union purchased the securities in question. In some cases, settlements or judgments have resolved claims asserted under multiple complaints. In addition, in some cases, the initial complaints have been amended. All public court filings and court orders are available for a fee through the system for Public Access to Court Electronic Records (PACER) available at

Allocation of Legal Recoveries

When the NCUA Board is appointed as liquidating agent for a federally insured credit union, the Federal Credit Union Act provides that the Board succeeds to all rights, titles, powers, and privileges of the credit union by operation of law.1 This mandate includes the authority to assess and pursue legal claims on behalf of the credit union.2 Recoveries that result from legal claims pursued in the Board’s capacity as liquidating agent belong to the credit union’s asset management estate (“AME”) and become available to distribute to unsecured creditors in the payout priority set forth in the NCUA's regulations at 12 C.F.R. § 709.5(b).

In the context of the Corporate System Resolution Program implemented in 2010, the Board succeeded to the rights of five large corporate credit unions in a short period, each of which became insolvent due to similar issues with residential mortgage-backed securities (“RMBS”). In response, the Board pursued claims collectively on behalf of multiple corporates against underwriters and sponsors of the RMBS.3 For each resulting recovery, the Board received payments collectively on behalf of two or more of the corporate credit unions, in global resolution of all of their claims against particular RMBS defendants or counterparties. As a result, unlike in the usual liquidation context where the Board might receive payment on individual legal claims for a liquidated natural person credit union, the NCUA had to allocate collective recoveries to each corporate AME that held RMBS covered by the resolved lawsuit or settlement agreement. 

To allocate these recoveries, the NCUA calculated a likely damages scenario for each RMBS, as the recoveries were obtained without a final judgment specifying damages per AME or per RMBS. The recovery amount allocated to a particular RMBS was then allocated to the corporate credit union) or corporate credit unions that purchased the RMBS. If an appeal or other legal uncertainty affected a subset of the RMBS in a particular recovery, the NCUA adjusted the amount allocated to the affected RMBS according to the NCUA’s best assessment of the additional litigation risks. For pre-litigation settlements, the NCUA also allocated a nominal amount to RMBS that were unlikely to meet statute of limitations requirements, pass other legal hurdles, or had no incurred losses but were nevertheless covered by releases as a condition of settlement. The bulk of these pre-suit recoveries was assigned to RMBS that met the legal pre-requisites for suit against the particular counterparty.

The table here shows the recovery amount allocated to each AME for each recovery. The table also includes the fees and expenses allocated to each AME for each recovery. The NCUA will update its web site for additional recoveries, if any, that it receives from remaining lawsuits. 

The allocations reflected in this table cover only legal recoveries and do not reflect other proceeds that are attributable to a particular AME, including those from the sale of assets or from monthly principal and interest payments received on securities that an AME holds.

1 12 U.S.C. § 1787(b)(2).
2 §§ 1766(b)(3), (5); 1787(b)(2)(B); 1789(a)(2).
3 The Board has also filed suit collectively on behalf of the corporate credit unions against LIBOR Banks and RMBS Trustees.


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