CLEVELAND A federal judge last Friday dismissed a suit against NCUA by a small church claiming the credit union regulator unfairly denied its $1.5-million insurance claim in the spectacular 2010 failure of St. Paul Croatian FCU, the biggest credit union fraud ever.
In agreeing to NCUA’s motion for summary judgment, Judge Donald Nugent said the NCUA Board’s denial of coverage on uninsured shares held by Holy Love Ministries was supported by substantial evidence and was not arbitrary, capricious, an abuse of discretion, or contrary to law.
A church official declined comment on the suit and referred inquiries to its Cleveland lawyer. The lawyer did not respond to both telephone and e-mail requests for comment on the case.
The tiny church is among dozens of St. Paul Croatian depositors who were stuck holding the bag for the biggest fraud in credit union history after NCUA apportioned deposit insurance payments. NCUA expects the fraud to cost the National CU Shares Insurance Fund $185 million to resolve.
Other victims include: St. Mary of the Assumption Roman Catholic Church in the Cleveland suburb of Eastlake, where the credit union was based, a loss of $150,000; Cascade FCU of Kent, Wash., a loss of $251,000; Acme FCU of Eastlake, $127,000; and Employees CU of Dallas. At least three individual members also filed suits against NCUA saying they have lost uninsured deposits. One elderly couple says they lost more than $500,000, the bulk of their retirement savings.
Holy Love Ministries, based in suburban North Ridgeville, claimed NCUA officials committed fraud when they allegedly told church officials a day prior to the takeover of the $240-million credit union the church would be allowed to withdraw the funds under so-called hardship rules. But NCUA eventually denied the claim and paid the church the maximum $250,000 allowable under federal deposit insurance rules, leaving it with a $1.5 million loss the biggest of any depositor in the fraud-ridden credit union.
Prior to an April 22, 2010 board meeting, the Holy Love representative on the board told the NCUA examiner he wanted to withdraw the church’s deposits and was advised to wait until Monday, April 26, because the credit union was being examined and the withdrawal might create a problem with the exam, according to court records. When the church representative also asked the interim credit union manager to withdraw the money he was told the same thing.
On the following day, NCUA called another board meeting, dismissed the entire board, and put the credit union into conservatorship on April 24. That Monday, April 26, NCUA liquidated St. Paul Croatian and allowed depositors a maximum of $5,000 withdrawal. That day NCUA posted a letter saying, “On a case by case basis, the conservator will consider requests for an exception to this policy, for example in the event of an emergency to meet a previously established commitment, such as a home purchase.”
In its suit, Holy Love, which had its own representative sitting on the credit union board, said NCUA mislead the Church when its director requested to withdraw all funds and was told to wait until after the weekend.
Holy Love, which had counted on its deposits to fund a $12-million building project, said it requested a “hardship” exception on numerous occasions, as the work on its building project was already well under way, but NCUA denied all of its requests. “The offer seems to have been misleading or fraudulent,” claimed the church in its court pleadings, about the hardship exception. In fact, despite the April 26 NCUA letter, the church was told no such hardship exception exists.
The church noted an internal NCUA report issued by the Office of Inspector General blamed NCUA examiners for missing the massive fraud and asserted, “This, in and of itself, should be sufficient to entitle Holy Love to a full refund of their monies.”
The credit union was victim to a massive fraud perpetrated by its CEO, Anthony Raguz, who confessed to accepting more than $1 million in bribes to approve tens of millions of dollars in loans the borrowers had no intention of repaying. More than 30 people have been convicted in connection with the fraud, including Raguz and several prominent local businessmen, including Eddy Zai, a well-known Cleveland real estate developer sentenced to prison earlier this year. Also sentenced to prison was a Balkans crime figure, Koljo Nikolovski, who wired $6 million of fraudulent St. Paul Croatian loan proceeds to banks in Albania and Croatia, which federal authorities are still working to repatriate.
The same federal court has also rejected several attempts by Holy Love to obtain part of criminal restitution agreements in as many as a dozen of the convictions, including Zai’s and Nikolovski’s.
