BRIDGEPORT, Conn. – A federal court here dismissed a civil suit brought against volunteer directors of New London Security FCU over the 2008 failure of the $13 million credit union after its elderly investment manager leaped to his death hours after NCUA discovered he had stolen the vast majority of the credit union’s funds.
In granting the directors’ motion for summary judgment U.S. Judge Warren Eginton ruled the state’s statute on joint and several liability for third-party negligence does not apply in this case, where the directors are being sued by Wells Fargo, which itself is being sued by NCUA for $10 million of losses on the spectacular failure. Wells Fargo is the successor to A.G. Edwards, where the 82-year-old investment manager implicated in the fraud, was employed until his suicide.
The investment manager, Edwin Rachleff, a former director of the credit union, jumped to his death from the eleventh story of a nearby building on July 28, 2008, hours after NCUA took over the credit union when it discovered that Rachleff had fabricated the investment records and had stolen some $12 million of the credit union’s funds. NCUA eventually paid out almost $10 million to insured members, which it is trying to recoup in its suit against Wells Fargo.
Wells Fargo, in turn, sued the directors and cited an internal NCUA report that concluded the directors failed to act on numerous examination reports on shortcomings on their oversight of its outside investment manager. The 2009 report by the NCUA Office of the Inspector General faulted the Board for not following procedures to operate a federally chartered credit union, for allowing Rachleff “run of the house,” in choosing, handling and overseeing New London Security’s investments, for ignoring clear and specific warnings about risk, and for failing to remedy deficiencies in previous audits.
Directors of the 72-year-old credit union, chartered to serve members of the neighborhood Jewish affinity club, named in the suit were: Herb Linder, its chairman; Martin Yavener, vice chairman; Hinda Kimmel, treasurer; and Rueben “Rip” Levin and Martin Lazarus.
Separately, a group of New London Security members who lost almost $4 million of uninsured deposits in the failure have dropped their suit against NCUA seeking to recover their losses. The same federal court had dismissed their case in September, but the group filed an appeal, which has since been abandoned.
Lawyers for the uninsured depositors did not return a phone call seeking comment.
