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Defunct San Dimas credit union takes center stage in S&P case

February 05, 2013|By Andrew Tangel
  • Atty. Gen. Eric H. Holder Jr. leads a news conference with attorneys general from eight states and the District of Columbia at the Justice Department of Justice in Washington.
Atty. Gen. Eric H. Holder Jr. leads a news conference with attorneys general… (Chip Somodevilla / Getty…)

Western Federal Corporate Credit Union in San Dimas was once the largest credit union in the nation. 

But in 2009, regulators took it over after it incurred nearly $7 billion in losses from its investments in mortgage-backed securities -- the bonds packed with subprime loans that helped fuel the mortgage bubble before it collapsed and helped plunge the financial system into crisis.

The Justice Department's case against credit rating firm Standard & Poor's cites WesCorp, as the credit union was known, as a victim of the toxic mortgage bonds that got overly high marks from S&P.

The feds filed the 119-page civil fraud case against S&P in Los Angeles late Monday and formally announced the case Tuesday.

"Significant harm was caused by S&P’s alleged conduct in the Central District of California," André Birotte Jr., U.S. attorney for the jurisdiction, said in a prepared remarks.

"Across the seven counties in my district, we had huge numbers of homeowners who took out subprime mortgage loans, many of which were made by some of the country’s most aggressive lenders only because they later could be securitized into debt instruments that were given flawed 'AAA' ratings by S&P," he said. "This led to an untold number of foreclosures in my district.  In addition, institutional investors located in my district, such as WesCorp, suffered massive losses after putting billions of dollars into RMBS [residential mortgage-backed securities] and CDOs [collateralized debt obligations] that received flawed and inflated ratings from S&P."

WesCorp's collapse has been the subject of litigation in recent years.

In 2011, federal regulators sued the Royal Bank of Scotland seeking $629 million in damages related to mortgage securities it sold to WesCorp.

In 2010, regulators sued two former WesCorp executives, accusing them of fraud for adding millions of dollars to their retirement packages before the credit union collapsed.

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