REIDSVILLE, N.C. -
Lawyers for the group are scheduled to meet in mediation with representatives of the credit union, which maintains it is not responsible for the losses, which represent the entire retirement savings of several of the members.
All of the members were workers at the American Tobacco Company plant and received lump sum retirement benefits when they were laid-off after the plant closed down in 1996. As many as eight of the members helped charter the credit union in 1975.
Fourteen of the members have filed suit in state court claiming the credit union should have known that the third-party advisor working out of its offices was investing the funds in Evergreen Security Ltd., a massive Ponzi scheme that failed in 2002, costing more than 2,000 investors in excess of $200 million.
In a Ponzi scheme, early investors are paid from money put in by later participants, making it appear that the investment is legitimate.
CU Says Rep Didn't Work For Them
Lawyers for the $50-million credit union insist that the third-party investment adviser did not work for the credit union and they were unaware of what that the members' funds were ultimately being invested in Evergreen. "We intend to vigorously defend these cases and in the end we expect the credit union to prevail," said Scott Hale, a Greensboro, N.C., attorney representing American Partners FCU. "We continue to maintain that the credit union didn't do anything wrong."
Philip Mohr, a Winston-Salem attorney representing the members, pointed to NCUA directives and said the credit union should have done more due-diligence to determine where the funds were being invested, and as a result bears the responsibility for the members' losses.
Mohr said that under NCUA Letter 150, regarding third-party investment advisors, the credit union should have known where the money was being invested. The letter, issued in 1993, sets guidelines on what a credit union needs to do to offer investments to its members.
In court documents, the credit union claims they did not know that the third-party investment adviser, David Morgan, who at one point was working for Mariner Financial, was investing the money in Evergreen. Morgan later filed for personal bankruptcy after losing his own and his family's money. The members have filed claims against him in bankruptcy court. "Our contention is that the credit union never should have let this guy in the door," Mohr said.
According to minutes of the credit union's board meetings, obtained under a court order, the American Partners' board learned about the failure of Evergreen and its affects on the members in 2001, just before the massive Evergreen scheme was uncovered by regulators and shut down, but failed to notify the members.
At least 35 members invested through the credit union with Morgan in Worldwide Ltd., which turned out to be a conduit for investments in Evergreen. Morgan portrayed the investments, five-year bonds with a 10% annual return, as federally guaranteed.
Repayment Of Up To $3M Sought
The 14 members represented in the suit-13 of them elderly and one of them disabled-are seeking repayment of the $1.5 million they invested, which would have amounted to as much as $3 million with the promised interest. All of the members have obtained some of their savings back, around 10%, through the Evergreen bankruptcy trustee.
A mediation session between the parties is scheduled for December, but Mohr said he expects the case to go to trial early next year. "They (the credit union) have continuously refused to talk about a settlement," he told the Credit Union Journal.
