METAIRIE, La. (4/10/13)--The Louisiana Corporate CU has agreed to a settlement with Credit Suisse in its decade-old lawsuit over the National Century Financial Enterprises asset-backed securities fraud.
Credit Suisse was the last remaining defendant in the case, which involved two civil actions filed in 2002 against a number of defendants.
"This settlement for nearly $600,000 after legal fees came after years of strenuous litigation and brings the total recovery to 98% of Louisiana Corporate's original investment amount," said Davoid Savoie, LaCorp president/CEO. Contingent legal fees totaled 10%--a much lower contingent rate than in recent settlements of asset-backed securities.
"We filed our actions promptly--within a few months of the losses--and pursued them vigorously. I'm delighted with this outcome because our member credit unions are the ultimate beneficiaries," Savoie said.
LaCorp's attorneys and certified public accounting firm had estimated that at least 80% of the fraud losses would be recouped through National Century's liquidation. However, LaCorp was required to write down 80% of the bond as other than temporary impairment (OTTI). By following generally accepted accounting principles, it recorded recoveries of previous write-downs as a credit to income, used to bolster LaCorp's retained income.
"Our efforts have resulted in a stronger corporate for our members," Savoie said. "Our board philosophy has always been that investment losses, like loan losses at natural-person credit unions, should not be shrugged off as 'water under the bridge.' We decided to make every reasonable effort to recover the funds if competent legal and accounting professionals believed it to be feasible."
Other plaintiffs sharing the settlement include PIMCO, Dreyfus Mutual Funds, Wachovia and numerous Arizona municipal entities.
"OTTI 'estimates' are produced in a highly complex and technical manner," said LaCorp's legal counsel, R. Patrick Vance, partner with the New Orleans law firm Jones Walker and head of its Business & Commercial Litigation Practice Group. "Like all estimates, they are predictions of the future and can vary widely. Based on the current method/protocol for determining OTTI, they may prove to be overstated when all the chips have fallen."
In LaCorp's case, initial OTTI mandates of 80% were off by 78%.