Citing evidence of management improprieties, a federal judge here all but rejected a legal challenge to the NCUA's takeover of D. Edward Wells FCU, the only black-owned financial institution in western Massachusetts and a leader in the community development credit union movement.
The April 4 hearing on the Feb. 21 NCUA action was brief, as lawyers for the credit union management and directors were unprepared to argue their case, insisting they were there only to set a formal trial date on the rare conservatorship challenge.
But a clearly annoyed Judge Michael Ponsor insisted that the hearing was their opportunity to present their case, prompting him to dismiss their challenge without prejudice, meaning they can refile it by April 18.
"You don't understand the process of the courts. This is your hearing date. If you want a hearing date this is it. This is your opportunity," he told a flustered Mary-Ann Lane, who was representing ousted credit union manager and well- known community development credit union activist Carol Aranjo.
'Rocky Road To Climb'
Citing NCUA's and other regulators' perfect record in conservatorship challenges since the 1989 s&l bailout law giving regulators extraordinary powers, Judge Ponsor told the credit union's lawyers the odds were against them. "You have got a steep and rocky road to climb to convince me to vacate this conservatorship," he stated. "I have researched the law and not found a single case, not one single case, where the court has stepped in and removed a conservatorship. So it is extraordinary relief being requested here. It's never happened."
The judge referred to NCUA allegations of an unbooked and unrecorded $1.5-million loan made by the $5-million CDCU, which still has a $750,000 balance outstanding, as well as an unsecured $2-million loan to a group of African- American activists called Friends of the Credit Unions, or FOCUS, which amounted to 33% of the credit union's assets and 424% of its net worth in violation of NCUA rules.
In addition, NCUA alleged that Aranjo either directed the destruction of credit union records sought by examiners or destroyed them herself. NCUA also alleges that the credit union has allowed Aranjo to run a negative share balance of as much as $50,000.
Those charges, noted Judge Ponsor, have gone unchallenged. "So I have no opportunity, no substantive opportunity, to deny any of the allegations being made by NCUA this morning," he said.
NCUA said it believes D. Edward Wells may be insolvent by as much as $1 million.
A defiant Aranjo denied all allegations of financial impropriety and challenged NCUA and prosecutors to file formal charges and prove their case against her. "I think they should," she said. "If they're going to charge me, then they should put it in a court of law where they have to prove it, where it's not just innuendo."
D. Edward Wells FCU, a pioneering CDCU, has been under close watch by NCUA for several years, a situation that was underlined by both Judge Ponsor and Aranjo. Aranjo has charged that the close scrutiny has amounted to harassment and has filed a separate suit in federal court claiming slander, libel and abuse of power on the part of NCUA and its examiners. But in court filings NCUA has argued that it is dubious accounting practices that have aroused its suspicions and put the credit union in a precarious financial condition. In fact, the financial condition has prompted NCUA to search for a merger mate for the credit union for more than two years.
Aranjo, who has long been a leading figure in the CDCU movement and who stood behind President Clinton in the Oval Office when he signed HR 1151 into law, is no stranger to controversy. Her six-year tenure as chair of the National Federation of Community CUs ended in recriminations and clashes with its founder and executive director, Clifford Rosenthal. She has also been highly critical of NCUA and the mainstream credit union movement for not doing enough to protect small and minority credit unions.
Secondary Capital Loan Dispute
It was a dispute over secondary capital loan from the CDCU Federation, a program created by Aranjo, that precipitated the latest bout with authorities by D. Edward Wells and Aranjo. More than a year ago the Federation asked for NCUA assistance in navigating a dispute over Aranjo's alleged use of the funds to pay member dividends, which is prohibited under the secondary capital agreement. While credit unions are now asking Congress to authorize the use of secondary capital to build reserves, low-income credit unions like D. Edward Wells have long been allowed to offer secondary capital accounts and to count them as net capital.
Sources familiar with the situation say because of the credit union's financial condition, the Federation may lose all of its secondary capital loan after a sale or liquidation.
Aranjo conceded she had little hope their challenge would be successful. "Judge Ponsor as given them (NCUA) everything that they wanted every time we've been in here for the past year."
Though the judge gave them an opportunity to refile their challenge, she doubted they would do so. "The judge has already made up his mind," she said.