CLEVELAND – A local church that lost $1.5 million in the collapse of St. Paul Croatian FCU has petitioned a federal court here for the internal records of NCUA in the days preceding the regulator’s April 2010 takeover and liquidation of the one-time $240 million credit union.
In its motion to allow discovery, Holy Love Ministries claims NCUA officials rejected its attempt to withdraw $1.1 million of its funds the day before the NCUA takeover, insisting that church leaders wait four days, until after the weekend, to make the withdrawal. “The following day NCUA held a board meeting and placed St. Paul’s into conservatorship, instituting a share withdrawal of only $5,000 per week during the conservatorship,” explained Church attorneys in a new filing with the U.S. District Court for the Northern District of Ohio. The following week, NCUA liquidated the insolvent 67-year-old credit union, causing Holy Love to lose $1.5 million “the money they attempted to withdraw a week earlier.”
Holy Love is one of several Cleveland churches, businesses, individual members, as well as outside credit unions who have been left holding millions of dollars in uninsured deposits at St. Paul Croatian FCU, after NCUA paid the maximum allowable $250,000 per account insurance. Nine individuals, including the credit union’s CEO, have been convicted of a scheme by which they obtained tens of millions of dollars in loans they never intended to repay.
NCUA estimates the failure of St. Paul Croatian will cost the National CU Share Insurance Fund $170 million in losses, making it the biggest credit union fraud ever.
NCUA, which rejected the Church’s claims under its administrative appeals process, has objected to the Church’s request for discovery in the case, arguing that judicial review in such cases is generally limited to the administrative record and does not traditionally permit discovery. The rationale is that the court should not substitute its judgment for that of the agency. One exception is a “strong showing of bad faith or improper behavior” on the part of the agency, which the Church is alleging occurred.
Holy Love Ministries says its representative, who served on the St. Paul Croatian board, asked the NCUA problem case officer, Kim Paige, on April 22, to withdraw $1.1 million, but the NCUA official rejected the request and told the Church representative to wait until the following Monday, April 26, to make the withdrawal. But the next day, April 23, NCUA took the credit union under conservatorship and froze all withdrawals over $5,000. A week later, on April 30, NCUA liquidated St. Paul Croatian, resulting in a loss of $1.5 million for Holy Love Ministries, after reimbursement of the $250,000 federal deposit insurance limit.
“Thus, as a direct result of Kim Page’s advice, Holy Love was unable to withdraw its own funds, which “did not allow (the church) to protect ourselves” when St. Paul’s was placed under conservatorship,” says the Church in its court filing.
The Church claims there is evidence that NCUA refused the $1.1 million withdrawal because it knew it would be taking over the credit union. “The proximity of the withdrawal refusal and the conservatorship as well as the numerous conversations mentioned in the record concerning the withdrawal are evidence of NCUA’s knowledge and its bad faith action,” says the Church in its filing.
Under NCUA own regulations, according to the Church, NCUA only has the right to refuse withdrawals after taking possession of a credit union and NCUA had not taken possession on the day the $1.1 million withdrawal request occurred. In addition, NCUA also violated its own $5,000 limit on withdrawals numerous times by request of several members of St. Paul Croatian, says the Church.
NCUA does not comment on pending litigation.
