Lafayette FCU's Narrow Conversion Vote In Jeopardy

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KENSINGTON, Md. - The narrow vote to approve Lafayette FCU's conversion to a mutual savings bank appeared in jeopardy last week after the auditor of the ballot rescinded its certification of the vote-count, based on questions raised by members and NCUA.

In a letter to the $330-million credit union and to NCUA, RSM McGladrey said it began to review questions raised by NCUA and had discovered certain errors in the 18-vote margin. "Because this may impact the overall outcome of the voting, we withdraw our certification," said Dale Holtz, managing director of the well-known auditing firm, in the letter.

McGladrey was planning to recertify the results of the member referendum by the end of last week, but it may not matter because NCUA is also looking over numerous member complaints about the voting process, the ballots and member disclosures provided by Lafayette to its 16,000 members during the 90-day vote.

The voiding of just a handful of votes could throw into question the whole ballot, the closest ever for a credit union conversion to a bank. The conversion passed with 2,555 votes in favor and 2,537 against - a margin of 18 votes out of almost 5,100 cast.

Lafayette officials would not comment last week. But in an interview with The American Banker, the Credit Union Journal's sister publication, President Michael Hearn attributed the strong opposition to the switch to bank to efforts by credit union trade groups to "derail" his conversion and others.

But Scott Stiens, a Lafayette member, said there are many Lafayette members who have been upset about the process from the beginning. Stiens, one of the members who have complained to NCUA, said they are approaching 750 members on a petition aimed at ousting the Lafayette board over the conversion effort. The petition aims to call a special meeting of members where they would vote to recall the entire board.

Among the complaints are that many members stationed oversees for the U.S. Agency for International Development, one of the credit union's main sponsor groups, may not have had their ballots counted. "Some of them may not have even gotten a ballot," said Stiens.

Several members have also lodged complaints about the balloting with the credit union's supervisory committee, which had not responded as of last week. "We never heard back from them," said Amber Brooks, another member opposing the switch to bank.

NCUA, which is required to certify the vote, said last week it is continuing to review member complaints about the vote process. "The agency is in the process of performing our regulatory review of the conversion vote at Lafayette FCU, and we are in continuing contact with the credit union regarding their submission, as well as regarding Lafayette member complaints received in recent weeks," said John McKechnie, agency spokesman.

Separately, hot money appears to be rolling in to the prospective bank from new depositors hoping to cash in when the institution goes public after switching to a bank. Stiens said while collecting signatures he encountered a local stockbroker who said he was joining just to establish rights to buy the stock when the credit union converts.

Other speculators are also reported to be finding ways to join through one of the credit union's many select groups. Richard Lashley, a New Jersey speculator in mutual thrifts, said the practice of speculative depositors in mutual thrifts is a common one, especially as the market for thrift conversions has proved lucrative in recent years. Lashley, who won a proxy fight last year with converted credit union Synergy Financial (Synergy FCU), said he has deposits in several local mutuals on the speculation that they will eventually go public.

One company, SNL Securities, in Charlottesville, Va., which specializes in the thrift market, even publishes a list of credit unions that are a good bet to convert to mutual thrifts sometime in the future.

Mutual thrift conversions, including those of former credit unions, have proved hot recently, with shares in Viewpoint Bank (Community Credit Union), the most recent credit union convert to go public, up 73% since its October debut. (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.

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