MILWAUKEE — New legal battles emerged last week among corporate credit unions, with troubled U.S. Central FCU one of the primary targets.
Corporate Central CU filed suit in a federal court here against Lenexa, Kan.-based U.S. Central claiming the failed institution 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 rose to the surface last winter.
"With U.S. Central, every six months you have to do a recalculation of the requirement for membership capital," said Daniel Kelly, an attorney representing Corporate Central. Kelly maintained that, 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 Credit Union Journal.
U.S. Central's board voted to make a change in the bylaws of the troubled corporate on Dec. 18, allowing it to retain and put to its own use the members' excess investments; just weeks later the corporate giant posted a $1.2-billion loss for the year.
In the suit Corporate Central claims representatives of several corporates that did not have excess investments made the decision, and therefore stood to gain by the vote, which could have prevented U.S. Central from having a new capital call. NCUA took U.S. Central into conservatorship on March 20, which could make this legal challenge very difficult for Corporate Central.
In Alabama, Corporate America CU is also taking aim at U.S. Central, alleging securities fraud, but in this case it is focusing on U.S. Central's board members and management and not the institution itself. The suit, filed in the Northern District Court of Alabama, claims that a number of individuals, including U.S. Central President Francis Lee, and top investment officers David Dickens and Kathy Brick, worked to conceal the $1.2 billion in losses U.S. Central reported in January, after claiming for months losses were much lower. Those figures have since quadrupled to $4.9 billion.
U.S. Central directors are also listed as defendants, including West Virginia Corporate CEO Charles Thomas, Wescorp President/CEO Robert Siravo, CA/NV League President Bill Cheney, Georgia Central CU President/CEO Greg Moore, VACorp FCU President/CEO James Hansen and CUNA COO John Franklin. The $2-billion Alabama corporate is seeking $9 million in damages; equal to the amount of PIC II it lost, as well as legal fees and punitive damages to "punish defendants for their intentional or wanton misconduct."
Ex-CU Files Suit
As U.S. Central faces suits from a pair of its member corporates, Members United FCU, Warrenville, Ill., is taking fire from Providence, R.I.-based Coastway Community Bank, a recent CU convert.
The bank is demanding Members United to return $580,000 it has on deposit with its one-time corporate. The funds are the remainder of a $1-million deposit the ex-CU had with Empire Corporate, which merged in 2006 to become Members United.
Under the requirements of membership capital agreements signed by all members, Coastway provided a three-year notice of redemption in September 2006. As a result, on September 11, 2009, Members United transferred $420,000 of the funds to Coastway's transaction account, but has failed to provide the remaining $580,000. The court has given the corporate until the end of the month to respond to the allegations.
