ALEXANDRIA, Va.–NCUA is looking to renegotiate the terms of an agreement with two law firms that to date have received more than $1 billion as part of settlements with big banks and other firms related to the sale of securities to corporate credit unions in the run-up to the financial crisis.
The attempt to renegotiate terms—which to date have been unsuccessful—has also caught the eye of members of Congress, with one representative saying the payments raise “serious questions” about the terms of the contract negotiated by NCUA with the two law firms.
At issue are the $1.1-billion in contingency fees paid to St. Louis-based Korein Tillery and Washington-based Kellogg, Huber, Hansen, Todd, Evans & Figel, which have represented NCUA in 26 lawsuits filed against various entities seeking damages for failed investments. To date, NCUA has recovered more than $5 billion after placing five corporates into conservatorship a decade ago.
Rep. Ann Wagner (R-MO) has sent a letter to NCUA Chairman Mark McWatters stating “The payment of over one billion dollars in legal fees to private counsel raises serious questions about the propriety of the NCUA’s legal fee arrangements, including whether the arrangements were in the best interest of the NCUA,” according to Politico, which first reported the item.
Wagner chairs the House Financial Services subcommittee on oversight.
NCUA Chairman J. Mark McWatters, who is an attorney, told Politico that the agency had met at least once with the law firms in an attempt to renegotiate the terms of the agreement, which was executed on Sept. 1, 2009. Its outreach was rebuffed, McWatters said.
“The agency should continue its efforts to negotiate a fair and transparent modification of these legal services agreements, where outside counsel has received, to date, over $1.1 billion in fees,” McWatters said in a statement sent to CUToday.info. “In my view, these fees are regrettably excessive, yet our good-faith efforts to reach an equitable accord with the recipient law firms have not succeeded.”
McWatters added, “Neither my fellow NCUA board member Rick Metsger nor I were involved in either vetting outside counsel or negotiating the terms of the corporate credit union-related legal services agreements.”
Fryzel Offers Statement
Michael Fryzel was chairman of the agency when it entered into the agreements with the two firms. In a statement on the NCUA website that can be found here, Fryzel said, “For those who believe that the fees earned by the attorneys are high, they need to understand that is the way the legal system works. In a suit for damages, attorneys earn a percentage of what they recover. The more they get for a client, the more they earn for themselves. It is an incentive-based system that encourages a greater effort. Had they charged an hourly rate or the recovery was minimal, many would complain that NCUA wasted credit union funds.”
While he was NCUA chairman, Metsger authored an op-ed in CUToday.info on the issue of the fees paid, which can be found here.
As CUToday.info also reported, in addition to the $1-billion in fees, NCUA paid expenses to the firms of $8,094,003 as of late 2016.
Seeking More Information
Rep. Wagner said she is seeking more information from the agency regarding the agreement with the two law firms, according to the March 1 letter that was obtained by Politico. The publication reported that Wagner has requested documents related to NCUA’s legal services agreement with the firms, including all records related to the selection of the law firms and all communications between the agency and the firms.
As CUToday.info also reported in October of 2016, questions of whether NCUA has overpaid the two law firms have been raised before. Comparisons have been made to the Federal Housing Finance Agency, which has acted as conservator for Fannie Mae and Freddie Mac 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.
In an October 2016 article headlined, “Yours For Just $45,000 an Hour,” CUToday.info’s Frank J. Diekmann also took issue with the billion dollars being paid to the lawyers in a piece published here.
The $1 billion paid so far could grow larger as Korein Tillery and Kellogg, Huber, Hansen, Todd, Evans & Figel continue to represent NCUA in five cases that are still pending against, U.S. Bank, Wells Fargo, Bank of America, HSBC, Deutsche Bank, and NovaStar.