ALEXANDRIA, Va.–Did NCUA overpay the attorneys it retained in its litigation over failed corporate investments?
As CUToday.info was first to report, NCUA revealed it has paid more than $1 billion to attorneys as part of its lawsuits against big banks and Wall Street over failed investments sold to corporate credit unions in the run-up to the financial crisis. The agency has recovered more than $4 billion from that litigation.
A report by Reuters published after the NCUA announcement suggested the amount paid to the two law firms retained is “more than double what another regulator (FHFA) that pursued a similar set of lawsuits against many of the same banks last year said it paid while obtaining an even larger amount of recoveries.”
NCUA made the payments to two law firms, Korein Tillery and Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC.
According to Reuters, the Federal Housing Finance Agency, which has acted as conservator for mortgage funders Fannie Mae and Freddie Mac FMCC since their government takeover in 2008, in September 2015 disclosed paying two other law firms $406.7 million.
The amount paid by the FHFA represents approximately 2% of the $18.7 billion that agency obtained through settlements and judgments against 16 banks.
Analysts have stated that the FHFA paid its legal fees on an hourly basis, not on contingency. Hourly legal charges often come to a smaller amount over the life of a case than a contingency arrangement, sources said. NCUA stated that it chose to pay its legal team on contingency to avoid charging credit unions for the legal fees.
In an op-ed published on CUToday.info, NCUA Chairman Rick Metsger wrote that “It’s commonly understood that such (contingency) arrangements customarily range between a third of any recoveries to as much as a half, depending on factors such as whether the case is settled before trial or only after lengthy appeals. I am pleased to inform you the contingency agreement NCUA negotiated with our attorneys has proven to be extremely beneficial to credit unions as well as fair to our legal team.”
NCUA reported that $1,003,029,479 was paid to the two law firms. In addition, NCUA paid expenses to the firms of $8,094,003, bringing the total paid to the firms $1,011,123,482.
NCUA spokesperson John Fairbanks, during an interview with CUToday.info, reiterated that NCUA got a "good deal."
"The agency negotiated a contingency fee arrangement with outside counsel that was at the low end of the usual range for these kinds of agreements," Fairbanks said. "What’s important to keep in mind is that the contingency fee arrangement, first, avoided the necessity of charging credit unions assessments in a situation in which they were scarcely able to afford them, and, second, shifted the risk to the outside counsel. That arrangement has worked very well, as recoveries have saved credit unions several billion dollars in costs.”
CUNA Chief Policy Officer Bill Hampel acknowledged that the fees are "a lot of money. Given the complexity and uncertainties involved in litigation of this kind, it's hard to say whether the NCUA’s approach to obtaining recoveries in these cases was the most cost effective. However, if they had not pursued these cases, they would never have recovered the substantial sums that they did, and pursuing them without a contingency arrangement would have been very difficult."
NAFCU President and CEO Dan Berger thanked Metsger and Board Member Mark McWatters for their “continued pursuit of recoveries on behalf of the failed corporate credit unions and the transparent action taken today; NAFCU has long called for the release of all information relative to corporate resolution, including legal fees.”
Separately, NAFCU is asking NCUA to develop a plan to dissolve the Temporary Corporate Credit Union Stabilization Fund and create a plan for expeditious repayment of stabilization costs to credit unions, before 2021.
As CUToday.info reported, NCUA on Tuesday said that by Oct. 31 it will fully repay the $1-billion outstanding balance on the agency’s borrowing line with the U.S. Treasury. When that payment is made, the Temporary Corporate Credit Union Stabilization Fund’s outstanding borrowings from the U.S. Treasury will be fully repaid, the agency said. NCUA’s $6-billion borrowing line with Treasury remains available to satisfy future agency contingent funding needs, including obligations of the NCUA Guaranteed Notes Program.
In a letter to the agency, NAFCU commended NCUA for completing the repayment.
“After the debt to the U.S. Treasury has been fully repaid, it is imperative that the agency develop a concrete plan for the years leading up to the dissolution of the Stabilization Fund,” stated Berger. “During this planning process, we strongly urge the agency to be fully transparent in its management of the Stabilization Fund. NAFCU and our members recommend the agency pursue a course of action focused on increased transparency and public input, with the goal being an expeditious refund to credit unions.”