Did NCUA Do Its Due Diligence?
Well, it was 41 degrees and pouring in Pinehurst, North Carolina yesterday which means that if you were looking for an early season round of golf, you’d have been better off heading to Albany, NY where it was a balmy and sunny 46 degrees. All in all, it is the type of weather ideal for getting stuff off your chest before the weekend rather than waiting until Monday. Plus, I want to see if I can get a post out before another New York politician is indicted. So here it goes.
Imagine your credit union had to retain a counsel to prosecute a major lawsuit involving millions of dollars. Considering the amount of money at stake, you won’t have any trouble finding lawyers interested in taking the case. How many lawyers should you interview? Should your General Counsel interview only the two law firms you decide to retain? Hopefully your answer to the last question is no. In my ever so humble opinion, due diligence requires a thorough vetting process when important litigation is going to take place and that means interviewing several qualified firms.
The reason why I am bringing this up now is because earlier this week NCUA announced that it has now obtained $355 million in settlements against those banks that have chosen to settle lawsuits brought against them by the agency alleging that the banks knowingly peddled sub-par securities to corporate credit unions that ultimately went bankrupt. What NCUA neglected to mention in its press release is that approximately 25% of the money will be given over to the law firms handling the litigation as part of a contingency fee arrangement. This arrangement never bothered me and when NCUA’s Inspector General looked into the issue at the urging of Congressman Darryl Issa it was given a thumbs up. However, in the same letter to the Congressman detailing NCUA’s arrangement, the IG also explained that NCUA didn’t follow its own procedures with regard to retaining lawyers for litigation in excess of $150,000.
NCUA’s procedures recommend that the Office of General Counsel interview at least three firms and advise that when this procedure is not used NCUA prepare a written memo explaining the reasons why. Neither of these steps were followed and I find this a real head-scratcher. After all, there is not a top flight firm in the country that wouldn’t have been willing to quickly make a pitch for work potentially worth hundreds of millions of dollars.
I am not questioning the quality of the firms ultimately retained by NCUA but when NCUA retained these firms, it was making a decision that could potentially impact the bottom line of every credit union in the country. When issues like this arise in the future, and unfortunately they will, credit unions should expect more due diligence from the agency. On that note, have a nice weekend and I’ll blog to you from warm and toasty Albany Monday morning.