MILWAUKEE – In a move that could help strengthen a handful of corporate credit unions, Corporate Central CU filed suit Friday against U.S. Central FCU claiming the troubled central bank for credit unions owes it more than $6 million and may owe corporates as much as $100 million in so-called excess investments it routinely returned to members until its financial problems accelerated last December.
“With U.S. Central, every six months you have to do a recalculation of the requirement for membership capital,” said Daniel Kelly, a Milwaukee lawyer representing the $2 billion corporate, who said under U.S. Central bylaws corporates were paid refunds based on the amount of excess investments they held in their accounts. “We had roughly $6 million in excess,” he told The Credit Union Journal yesterday.
But the Board of U.S. Central, starved for capital at that point, voted a change in the bylaws of the troubled corporate on Dec. 18, 2008 allowing it to retain and put to its own use the members’ excess investments. Corporate Central and the other corporates were notified by U.S. Central of the new policy on Dec. 22, 2008, just weeks before U.S. Central was to announce a $1.2 billion loss for the year, since multiplied four-fold.
In its suit, filed in U.S. District Court for the Eastern District of Wisconsin, Corporate Central claims the decision by the U.S. Central Board was made by representatives of several corporates that did not have excess investments, so therefore stood to gain by the vote, which potentially prevented U.S. Central form having a new capital call. According to the bylaws of U.S. Central, said Kelly, “the board of directors cannot participate or deliberate in any policy decision that will affect any institution in which they have a pecuniary interest.”
Correspondence attached to the lawsuit indicates that corporates like Corporate Central stand to gain as much as $100 million if the suit is successful. Though that may sound like small potatoes for some, Corporate Central, one of the healthiest corporates, still has positive capital of $153 million, even after it charges-off $73 million of its capital in U.S. Central.
Kelley acknowledged his client has an uphill battle as the ultimate defendant now is NCUA, which took U.S. Central under federal conservatorship on March 20, giving it broad legal powers. But he said the issue has constitutional ramifications under the “equal protection”clause of the U.S. Constitution which requires that all members of U.S. Central be treated equally.
