WASHINGTON – CUNA disputed that its numerous ties with U.S. Central FCU amounted to control of the board of the one-time central bank for credit unions, which was liquidated Oct. 1.
“CUNA had one vote on the board of U.S. Central,” CUNA General Counsel Eric Richard stated Friday. Richard denied that a second seat on the nine-member U.S. Central board reserved for the CUNA-affiliated state leagues gave it controlling influence on the board, nor that numerous ties between the two organizations, such as an ownership stake by CUNA and its affiliates, joint lobbying or even a shared Washington, D.C., office, amounted to a controlling influence of U.S. Central, which was chartered in 1974 by CUNA and affiliates.
CUNA’s response comes after a report issued last week by the Inspector General of NCUA concluded the main cause of failure of the one-time $52 billion corporate credit union was lax oversight by the management and board of U.S. Central as it piled up more than a third of all of its assets in risky mortgage-backed securities.
The nine-member board, according to CUNA’s Richard, was comprised of seven representatives from U.S. Central’s 27 corporate members, with seats reserved for a CUNA representative and a representative of the CUNA leagues. CUNA’s chief operating officer, John Franklin, served as the CUNA representative for the final nine years of the U.S. Central Board, according to Richard. In addition, CUNA’s new president, Bill Cheney, served on both the boards of U.S. Central and of WesCorp FCU at one time.
CUNA’s Franklin and the other eight U.S. Central directors were removed in March 2009 when NCUA took the failing corporate under conservatorship. The directors and managers have seen been charged with fraud in a civil lawsuit brought by one of the corporate members, Corporate America CU, and as likely targets in a directors and officers liability insurance claim by NCUA, which is seeking to recover as much as $7 billion of losses on the corporate failure, the biggest ever in credit union history.
Cheney, who also is named as defendant in the suit and in NCUA’s notice of potential claims for insurance, has denied a role in the demise of the two corporate failures. Cheney, who took over as president and CEO of CUNA in July, served on the board of U.S. Central as representative of the leagues (he was then president of the California CU League) and on the WesCorp board when he was CEO of Xerox FCU (now known as Xceed Financial CU).
CUNA’s Richard downplayed CUNA’s role in the governance of U.S. Central, noting that close interlocks with U.S. Central – at one point the president of CUNA also was the CEO of U.S. Central – were severed by NCUA more than a decade ago when it passed a corporate interlock rule. He also insisted that the other directors on the U.S. Central board, the corporate CEOs, were notorious for their independence and could not be considered under the sway of CUNA.
He asserted that CUNA’s numerous ties with U.S. Central, such as its ownership of member capital, its one-time sponsorship of the U.S. Central-led Association of Corporate CUs, and numerous joint lobbying campaigns with Congress, the Treasury and the Federal Reserve, did not amount to a controlling influence over U.S. Central affairs. “We had the same position with them on certain issues. Sometime we acted as liaison for them, such as with Treasury,” he said.
