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Perhaps the most telling indicator of whether members really believe their credit union would be better off converting to a bank is that in the two cases where a group of determined members have fought the conversion attempt, it was stopped.

Or perhaps it just has something to do with cities named after the explorer Captain George Vancouver.

In early 1999, Surrey Metro Savings Credit Union, located in a suburb of Vancouver, B.C., and the only publicly-traded credit union in the world, announced plans to sell itself to Canada Trust, a bank. Surrey Metro operated under a unique form of organization in which members retained voting control but its $75 million in equity was controlled by non-voting shareholders over the Toronto Stock Exchange. Its CEO, Lloyd Craig, had told The Credit Union Journal that he expected members to approve the merger because it offered substantial benefits in terms of products and services.

As Craig would come to learn, members didn't agree-and they turned out in droves to say so. But only after one member raised a stink. John Woodward, who had helped to found the credit union in 1945, objected when Surrey Metro announced it had agreed to be acquired by Canada Trust, and set out to single-handedly stop it in its tracks. Woodward formed "The Friends of Surrey Metro," recruited others, including his son Jack Woodward, a lawyer, and together the group fought to raise awareness of the value of a credit union charter and the reasons the then (C) $2.1-billion credit union should remain one.

It turned out there were many friends of Surrey Metro. The credit union had expected that perhaps hundreds of members would vote on the sale-similar to the turnout at its annual meeting. Instead, some 27,700 cast votes, 76% of which were against the takeover initiative. Friends of Surrey Metro followed up with a petition drive aimed at removing the nine-member board of the credit union-and afterward, the management-but fell far short of the required two-thirds vote needed.

Ironically, weeks after the vote Canada Trust was acquired by Toronto Dominion Bank.

After the failed recall, CEO Craig said the dissident group failed to recognize the necessity of consolidation in the evolving financial services market, adding, "If somebody came calling, we would give it all the time and attention that it needed. We'd be very interested," he told The Credit Union Journal.

Craig proved true to his word. Three years later, Surrey Metro, then the third largest credit union in Canada, merged into Coast Capital Savings Credit Union, creating the largest CU in the country with 300,000 members and assets at the time of the merger of (C) $6 billion.

But there was another observation made in August of 1999 that proved to be equally prophetic, especially for credit unions in the United States. Said Jack Woodward, "The motivation, we believe, is still there for those directors and members of senior management to continue to promote (conversion) because they hold so many stock options."

That issue of insiders profiting from the conversion of a credit union to a bank charter is at the crux of the debate in early 2004. Credit unions seeking to convert or which have already done so say they have been left no choice and must become a thrift (and often later a publicly-traded bank) in order to expand marketshare and product and service offerings. Critics say the reasons are far simpler: the apathy of most members who trust their credit union's word, and the greed of senior management and board members who take advantage of that trust.

A Telling Comment

Certainly the critics' case was bolstered when in late 2003 at a conference hosted by the Credit Union Executives Society (CUES) in Naples, Fla., Alan Theriault, the Portland, Maine-based consultant who has been behind nearly every conversion, admitted that he "didn't know" how many conversions would have actually occurred were there not a reward in it for the board and management.

Currently there are two large credit union seeking to convert: The $660-million Columbia Credit Union in Washington State (home to several other conversions), and the just-announced attempt by the $963-million Lake Michigan Credit Union in Grand Rapids, Mich. Theriault is involved in both conversion attempts.

That insiders within credit unions are personally profiting-in some cases to the tune of millions of dollars-is also now becoming clear as some former credit unions that converted to thrift charters now are going public. Case in point is Covina, Calif.-based K-Fed Bancorp, the former credit union known until 1999 as Kaiser Permanente FCU. It has announced an increase in the size of its planned initial public offering from $45 million to $57 million. K-Fed, a holding company for Kaiser Federal Bank, a mutual savings bank, plans to sell 46% of the holding company to the public and retain controlling interest for the near term, according to a filing with the Securities and Exchange Commission. Executives and directors of the $450-million thrift plan to buy 255,000, or 14%, of the shares.

But if shareholders approve proposed restricted stock purchase and stock option plans to executives, executives and directors could end up with almost one million shares at the initial offering price, putting them in position to reap millions of dollars in gains if the offering is successful.

Unlike previous offerings by credit union-converts, former credit union members will not be given priority in purchasing the stock. K-Fed has also amended its offering to allow employees to invest their 401(k) retirement plans in the soon-to-be issued stock.

Red Flags Raised

Five years after a small group of activists thwarted the sale of Surrey Metro Savings Credit Union, and five hours south in another city named after Captain Vancouver, Steve Straub opened a piece of mail from his credit union. Inside, he found a muted and straightforward announcement that Columbia Credit Union's board had voted in favor of a conversion to a thrift charter. Straub has more of a vested interest in Columbia Credit Union than the average member, having been CEO at CCU for 22 years, before being fired in July of 1992.

Indicative of how deep passions are running as Columbia attempts to convert, after Straub joined a group fighting the conversion members of the credit union trade press have received anonymous letters marked "Personal and Confidential" that were mailed from Portland, Ore., and which contain 14-year-old press clippings of reports of Straub's firing. Straub sued the credit union and the matter was eventually settled.

"I read all that Columbia said they wanted to do, and then the red flags started to go up in my mind," said Straub. "They said they want to serve more people, but they already have an open field of membership (for the state of Washington and portions of Oregon). Now they're going to be subject to income taxes. It struck me like the old joke that we're going to lose money on each deal, but we'll make it up in volume. They are going to be immediately subject to income tax. Why? So they can pick up a little piece of business?"

Straub said his own calculations indicate that if taxed, Columbia would pay approximately $3 million in corporate income taxes. That amount represents 50 to 60 basis points of spread, said Straub, who today is president of a company called Competitive Edge that helps credit unions to measure quality and member satisfaction across the organization. He said the company has approximately 200 credit union clients. "They've got to make up that spread somehow, whether it's with rates or fees."

Straub's secondary reaction to the conversion attempt was even stronger. "The reasons for doing this are invented and bogus," he suggested. "I can't understand how this is not criminal."

The First Meeting

On Monday, Nov. 3, 2003, at the Heathman Lodge, a rustic looking resort and hotel seven miles from downtown Vancouver, the board of Columbia Credit Union set a membership meeting on the conversion for 10 a.m. Those who are opposing the conversion now say the unusual location, time and organization of the meeting were not accidental.

"I was appalled at how they structured the meeting," said Straub, who was on hand at the Lodge. "At 10 a.m., there are a lot of people who can't get away from work."

Still, many did make it. Straub said by his count approximately 200 people were in the room where the board met, and a small room for overflow was also set up in which audio was piped in.

Early on a motion was made for a postponement, according to Straub. That was ruled out of order. "Almost immediately people started to grumble," said Straub.

What transpired at the Nov. 3 meeting depends on the point of view. Although there was a microphone present, no recording devices were permitted. Members opposed to the conversion say they weren't permitted to speak. But Brian Witt, legal counsel to the credit union, told The Credit Union Journal in December, "Everybody at that meeting had a full opportunity to speak. There was no one who was not allowed to speak. All questions were answered."

"Once they opened the mike, people wanted to talk about it," said Straub, who believes several of the people who posed questions had been planted by management. "Some were articulate, some not, but all said they didn't understand the reasons for wanting to convert. They said they wanted more facts and figures. The answers reminded me of a politician who speaks but never answers. One member wanted to make a motion to delay the vote and someone else tried to second it, but they were ruled out of order."

During a half-hour recess, Lloyd Marbet, a local activist in Vancouver who has become central in the fight to stop the conversion, began collecting names of others at the meeting who were of like mind. Straub got Marbet's card. The meeting adjourned to almost no one's satisfaction.

State Charter, Federal Rules

To conduct its vote on the conversion, Columbia Credit Union invoked a loophole in the state credit union statute that allowed it to have its vote certified under NCUA's rules, rather than the state's more stringent requirements. Washington State's rules require a two-thirds majority of members to approve a conversion; NCUA requires a simple majority. That decision would prove crucial.

Of Columbia Credit Union's 59,000 members, just 16%, or some 9,228, cast their votes in the conversion. Of those, 4,821 (52%) voted in favor, while 4,407 opposed, meaning a mere 208 votes could have changed the outcome.

Almost immediately, the small group that had formed to fight the conversion and which was now calling itself Save Columbia Credit Union filed objections with both Washington's Department of Financial Institutions and NCUA over how the vote was conducted, the nature of the information disclosed, the Nov. 3 member meeting, and more.

Among those who formed the small Save Columbia CU group was Marbet, Straub, and Tony Ward-Smith, a Seattle-based consultant well-known within the credit union community who is also a member of Columbia Credit Union and a long-time friend of Straub's. Thirty years earlier Ward-Smith had been working for CUNA as credit unions fought the banking industry to get the power to offer share draft accounts. Among those beta-test credit unions: Columbia CU. "I opened an account and I've been a member ever since," he said.

For some time Ward-Smith said he had been bothered by credit unions converting to other forms of charter. "I would ask, 'What's the future for credit unions?'" he explained. "I'm the one who as a consultant has been saying, 'Wake up! What is our role in the broader reality?' I've seen a lot of credit unions merge and give up. One thing that concerned me was these conversions to banks. That's not good. And then one day I opened up my mail and there was my credit union saying it wanted to convert. I was blown away."

Newspaper Ads Bought

Ward-Smith immediately called Straub and both had more questions than answers. "I asked what do you think? Do you care? Is there anything we can do?" Ward-Smith said he spoke to Chip Filson, president of Callahan & Associates, who urged him to take some action.

He made the three-hour drive south from Seattle along the Sound named after Vancouver's fellow explorer, Peter Puget, to a hastily organized meeting that included Straub, Marbet and a handful of others who had more passion than knowledge of what to do. The group met first at an attorney's office and later at a library branch, took some rudimentary steps, including splitting the cost of $1,000 worth of newspaper ads in Vancouver seeking to alert the community to its mission. With an attorney's pro bono help, they also took on the extremely daunting task of assembling a drive that would seek to get member signatures on a petition to recall the board and overturn the conversion vote.

For his part, Ward-Smith tackled the task of setting up the www.saveccu.com website that makes plain it is "desperately trying to save Columbia CU." The site includes considerable amounts of material and information related to the conversion, including comments critical of the Save Columbia CU group itself. It also includes documents created by Theriault in which the consultant touts how much directors and management can make from a conversion.

Back in Vancouver, others were tackling the petitions. Columbia Credit Union's bylaws state that 2,000 member signatures are needed to call the special meeting the group wanted held. With the clock ticking and the conversion vote already held, the odds of the group succeeding seemed long.

Rainy Days & Daunting Tasks

During cold and wet winter days, the worst weather the Pacific Northwest had served up in 15 years, members of the dissident group headed out to the credit union's 11 branches trying to convince perfect strangers who only wanted to get out of the rain and on with their Christmas shopping that they ought to sign their petition. And they succeeded.

"I was surprised they did it," admitted Ward-Smith. "It was a daunting task. Just to get (the 2,000 names required) we knew we'd have to get at least 3,000. We could see even at that point that there wasn't much time. We didn't know if we were even allowed to stand in front of the credit union. We didn't know if it was a futile effort, but then what option did we have?"

"We got enough people out of those thrown-together meetings to go to the branches and collect signatures on the petitions," he continued. "Nobody knew the rules or what they were even allowed to do, but they did it."

The initial reaction from Columbia Credit Union was not welcoming. The credit union called the police, who in turn ordered the petition-gatherers to leave or face arrest. Eventually, perhaps because the credit union was facing increasing local press coverage, CCU backed off, and the petition-gatherers returned.

"I figured that with 11 branches, even if you got two people per branch for perhaps three or four hours and they gathered 30 signatures per hour, that it would still take a couple of weeks," noted Ward-Smith. "I thought it was doable, just not very probable. But the opposite thing happened. In the first week and a half they had half the signatures. And then the damn thing is, they did it."

In mid-January, the dissident group, led by Marbet and protesters holding signs reading "No Bank," marched into Columbia Credit Union to deliver 3,600 member signatures calling for a special meeting. The petitions were delivered to the credit union's attorney, Brian Witt.

If the group fighting the Columbia Credit Union conversion was happy to deliver the petitions, they were elated at the report handed down by NCUA's Region VI Director Melinda Love, who, after a 10-week review, found widespread irregularities and illegalities on Columbia's part, and who ordered a new member vote be taken.

What NCUA Found

NCUA found in its review that the mail ballot held last fall was carefully orchestrated to suppress certain votes and succeeded in eliminating thousands of eligible voters from participating. Among the other findings:

* 4,700 joint account holders who were eligible to vote did not receive ballots.

* 2,183 ballots were mailed to incorrect addresses more than once, even though the addresses on many of the accounts were corrected.

*227 members in the process of being expelled from the credit union for causing a loss were denied ballots even though they were still eligible to vote.

* No third-party controls for counting the ballots and only hired an independent auditor to monitor the vote-counting after most of the ballots had been counted. In one instance, Paul Hodge, vice president of the credit union, brought more than 500 ballots into his office, closed the door, then counted them, according to NCUA.

The review also found widespread intimidation of employees, many of whom are also members, who said they felt pressured to vote for the conversion.

* NCUA said the special Nov. 3 meeting where the process was finalized was planned to attract the lowest possible participation by holding it at 10 a.m. on a Monday morning, whereas the credit union normally schedules its annual meeting at 6:30 p.m. to encourage a large member turn-out.

Perhaps most stinging were findings related to what the Save Columbia CU group had charged all along, that the conversion was being motivated by insiders seeking to profit by taking a cooperative and its collective capital and selling it to the highest bidder.

NCUA said that it found that 23 people got ballots even before being qualified as members, including several members of Columbia President David Doss' family, and Hans Ganz, the CEO of credit union-convert Pacific Trust Bancorp (Formerly Pacific Trust FCU), setting those people up to get in on a potential stock offering after the conversion. NCUA also alleged that despite Doss's denials, he and other managers had discussed selling the institution to the public in a stock offering after the conversion to MSB. The NCUA report found it was Doss's "stated intention" to eventually sell the institution in an initial public offering, some of the proceeds of which would be used to acquire another bank in the area. The report did not establish whether the board knew of the plans to take the institution public.

Columbia CU issued a statement responding to each of NCUA's allegations. But its board has also now backed away from the plan to convert, and at the same time issued a new reason for the conversion attempt: to raise secondary capital, something it hadn't cited before.

Group Files Suit

But Save Columbia CU isn't satisfied. They have now filed suit in state court asking the court to enforce their petition for a special membership meeting where they would vote to recall the credit union's nine-member board. The group said despite the board's retreat from efforts to convert the credit union to a mutual savings bank, they want the board to answer for actions performed during the conversion try.

"There's a lot of issues that need to be discussed by members of Columbia CU," Lloyd Marbet told The Credit Union Journal.

Marbet said his group was frustrated by last week's agreement between the Columbia board and the state's Department of Financial Institutions under which the state regulator agreed not to press the special meeting in exchange for allowing the dissident group to field a slate of four candidates for the board at its regular annual meeting.

The DFI had originally ordered Columbia to honor the petition, signed by almost 3,600 members, but backed off in exchange for last week's agreement. Marbet said his own Portland-based organization, the Oregon Nature Conservancy, a Columbia depositor, has signed on as intervenor in the case and will finance the suit from its $1-million endowment.

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