BRIDGEPORT, Conn. – A federal court yesterday dismissed a suit brought by members of New London Security FCU against NCUA to recover $4 million in denied deposit insurance payments, ruling members of the spectacular 2008 failure missed by just three weeks the deadline to file the suit.
The court ruled that the members had failed to file their suit within six months after the NCUA Board denied their administrative claims, as the law mandates.
The members claim NCUA failed to spot the fraud by the $13 million credit union’s 82-year-old investment manager, who leaped to his death from the 11th-story of a nearby building just hours after NCUA shuttered the 73-year-old credit union on July 28, 2008. An internal NCUA report found the manager had stolen almost all of the credit union’s $12.7 million in investments and hid the theft from NCUA examiners for 20 years.
NCUA paid members of New London Security almost $10 million in deposit insurance up to the then-limit of $100,000 per account, but denied claims of several members over the limit–a total of $4 million. Congress has since then raised the limit to $250,000 per account.
The members claimed in their suit, filed in the U.S. District Court for the District of Connecticut, that NCUA failed to adequately conduct annual evaluations over a two-decade period, thus facilitating the fraud.
The investment manager, Edwin Rachleff, purported to maintain a credit union investment account with A.G. Edwards, but had maintained the account in his own name, according to a report issued last year by the Inspector General of NCUA. Rachleff, who sat on the credit union’s board for 19 years, covered up his fraud by providing phony reports which he hand-delivered to the credit union, the report said.
At the time of the seizure, the NCUA action seemed unusual because the credit union appeared to be healthy, with only $5,000 of reported losses for the first half of the year and 17% capital. But one thing stood out: the credit union had just $234,000 in loans to members, meaning more than 98% of its assets were in investments. The credit union, according to the NCUA report, was nothing more than an investment club.
NCUA moved to shut down the credit union after examiners visited Rachleff’s office, where they reviewed original statements and supporting documentation. Examiners found that according to the investment firm, the credit union did not have an investment account worth $12 million. Specifically, examiners determined the existence of one brokerage account, the New London Security FCU Deferred Compensation account, which as of July 2008 held approximately $55,000 in investments.
