WASHINGTON – NCUA on Friday told a federal court here it seized Vensure FCU three weeks ago after it realized the tiny Arizona credit union was nothing more than a conduit for billions of dollars of online gambling bets.
In heavily redacted documents submitted to the court Friday, NCUA said the $4.7 million credit union has not made a loan for more than two years and its sole business purpose was processing as much as $50 million a day in bets for Trinity Global Commerce, which processes bets for the two biggest online poker sites, PokerStars.com and FullTiltPoker.com.
NCUA seized Vensure on April 15, hours after the Justice Department indicted 11 international gambling figures and seized dozens of bank accounts – including Trinity’s account at the credit union. NCUA told the court the possible forfeiture of Trinity’s $2 million as part of the criminal case will render the credit union insolvent.
“According to all the information available prior to April 15, 2011, Vensure appeared to be nothing more than a shell whose only function was to facilitate Trinity’s processing of Internet gambling transactions,” NCUA told the court Friday.
Vensure has challenged the NCUA takeover, claiming the credit union plans to exit the gambling business and embark on a legitimate credit union plan. In filing suit, Vensure hopes to stop NCUA from liquidating the credit union.
Vensure, according to the federal indictment, was one of some three dozen U.S. financial institutions who either were tricked into or willingly agreed to process billion of dollars of illicit online bets by the three main poker sites, which also included Absolute Poker. In one case, the gamblers agreed to invest $10 million in Utah’s SunFirst Bank to facilitate the business, and sought out similar investments in other small troubled financial institutions.
The processing of the online gambling, according to the indictment, violates the Unlawful Internet Gambling and Enforcement Act. The Justice Department is seeking the forfeiture of $3 billion held by the gambling companies in those accounts.
The gambling sites disguised the massive transaction volumes by creating phony fronts, including Trinity Global, and telling the financial institutions they were transactions for merchants.
The development of the credit union as a conduit for online gambling bets had an unlikely genesis, according to the court records. The credit union was chartered in 1952 as Grand Adirondack FCU to serve members of the Knights of Pythias social club in New York City. The credit union was about to die and its charter revoked by 2007 as its assets fell to just $30,000.
In 2008 the credit union got permission from NCUA to add another innocuous-sounding New York organization, the National Investors Financial Education Association. “It was at this point, that the fate of this sleepy little credit union quietly transformed into something much more,” NCUA told the court.
At that point, the credit union dropped off the map. NCUA examiners failed in efforts to contact representatives with the credit union in New York, or its chief sponsor, the Knight of Pythias. Then, all of a sudden, in March 2009, the credit union resurfaced in the small town of Gilbert, Ariz.
“In addition to the surprise move, according to the March report, during the first quarter of 2009 [Grand Adirondack FCU] exploded with assets, expanding to [$2.1 million],” according to NCUA.
NCUA examiners saw red flags and began a series of administrative actions with the credit union, which changed its named to Vensure in January 2010. Specifically, they learned that all of the new assets and income were derived from ACH payments and wire transfers for poker betting and they began questioning the credit union’s relationship with Trinity. All of the correspondence surrounding those actions was sealed from the public by the court on Friday.
Vensure and its lawyers tried to convince NCUA that its gambling business was legal but NCUA remains unconvinced. Even if it were legal, said NCUA, the business poses a big risk to the credit union as its sole source of income. The risk that Vensure would be responsible for big bets should Trinity fail to cover them also played big among NCUA’s concerns. Vensure responded to NCUA’s concerns by adding a second online gambling site, fulltiltpoker.com, to its business, according to the court filings.
Ultimately, NCUA told the court, these risks are borne by the National CU Share Insurance Fund.
“This concerning history combined with subsequent events involving ongoing criminal prosecutions related to Internet gambling escalated into a situation of overwhelming risk leading to the NCUA Board’s decision to place Vensure into conservatorship.”
Representatives of Vensure say they want to show the court the credit union is a viable one even without the online gambling business and plans to develop into a traditional credit union by marketing loans and deposit accounts to its sponsoring company, Vensure Employment Services. They point to their first quarter financials showing a $314,000 net – an annualized return-on-assets of 2.7% – and net worth of $1.2 million, or 26%, to show the credit union is in sound condition.
The court will hear arguments Wednesday during a show cause hearing on the conservatorship.
