DALLAS — Struggling Texans CU, which is embroiled in several multi-million dollars lawsuits over its member business lending, was hit by a new suit in federal court which assails the one-time $2 billion credit union's wholly owned CU Liquidity Services LLC CUSO as a "Ponzi scheme" which shuttled inadequate pools of funds among various borrowers just to gin up fees and commissions.
The new suit, filed by developers of a Mississippi real estate project financed by the Texas credit union, comes as the same CUSO is fighting civil fraud claims brought by developers of a Texas commercial and residential project it financed, as well as a multi-million dollar suit over a troubled Chicago shopping mall it financed. In addition, the credit union's separate wholly owned CUSO, Texans Insurance Group LLC, has filed for bankruptcy amid a major dispute with its former president who sold his insurance company to Texans. A spokesman for Texans told the Credit Union Journal that dispute has been settled with the terms of the settlement confidential.
The MBL conflicts have created big losses for the one-time high-flying credit union for the past three years, including a $44.4-million loss for 2008, a $51.6 million loss for 2009, and a $15.6 million loss for the first three quarters of 2010, pushing its net worth ratio down to just 4.2% at Sept. 30. The MBL losses eventually cost David Addison, the CEO of the credit union, his job and he was forced to resign in January 2009.
The latest suit, moved from state court to federal court recently, charges that the credit union and the CUSO, formerly known as Texans Commercial Capital LLC, never intended to adequately fund the various multi-million dollar development loans but was just trying to create fees, then pass the loans off to other lenders.
"The plan or scheme was a Ponzi scheme wherein TCC made false promised of long-term lending to potential borrowers in order to induce the borrowers to borrow money, then TCC would shuttle an inadequate pool of funds among various borrowers to give the illusion of adequate funding capacity," said the plaintiffs, Green Hills Development Company LLC and Heartland Development Company LLC.
"In pursuit of this scheme and venture, Texans Credit Union and TCC acted as joint venturers, partners, and alter-egos and conducted their affairs such that their separate business structures should be disregarded at law and in equity." The developers of the Mississippi project allege that delays in funding its project by the CUSO forced them to seek other funding, but the CUSO insisted that its commitment required them to borrow the money from the CUSO and pay the fees. They claimed this forced the developers to borrow the money it no longer needed or wanted.
Lawyers representing the credit union CUSO in the case did not return phone calls seeking comment.
