WASHINGTON – The legality of NCUA’s April 15 takeover of an Arizona credit union processing billions of dollars in Internet poker bets ultimately could be decided on a court’s ruling whether the activity is a legal one for federally chartered credit unions.
Lawyers for Vensure FCU on Tuesday told a federal court it has agreed to exit the lucrative betting business if “a determination by a competent legal authority – either the NCUA in an administrative hearing or a court – that the processing is illegal. Of course, if there is a contrary determination in the interim that the processing activity is lawful, the termination will be rescinded.”
The lawyers, seeking to nullify the NCUA takeover, told the court the NCUA Board vote to take the $4.7 million Mesa, Ariz., credit union under conservatorship was taken in order for the agency to avoid further embarrassment after the U.S. Justice Department had acted earlier that day to freeze Vensure’s gambling account and those at three dozen other financial institutions involved in online betting.
According to minutes of the closed meeting, the actual grounds for this decision were summarized by NCUA Board Member Michael Fryzel, who said, “We are going to have to be taking action on it at the last minute in order to make sure that we are not embarrassed further.”
NCUA Chairman Debbie Matz responded: “I echo your comments,” according to the administrative record of the closed board meeting submitted as part of Vensure’s challenge to the takeover.
Fryzel also stated, “now, at this late date, we sit here attempting to take action before the Justice Department moves in and embarrasses us even further.”
The Vensure takeover came just hours after a federal grand jury indicated a dozen international gambling figures and froze accounts they held with almost $3 billion earned from online poker bets. Included was a $2 million account by Vensure’s biggest depositor, called Trinity Global Commerce, which processed some $50 million a day for the two biggest online poker sites, PokerStars.com and FullTiltPoker.com. Virtually all of the credit union’s income came from processing bets.
The Vensure lawyers told the court the credit union has adequate financial resources, more than $1 million in unencumbered capital, to operate as a traditional credit union, even if it ultimately is forced to exit the bet processing business. Even without having made a loan in more than two years, Vensure said it now is actively marketing its lending to its 144 members and employees of Vensure Employer Services. In an affidavit submitted to the court, John Iorillo, president of the credit union, said it is planning to introduce as many as 14 new lending and deposit products, from Internet banking to bill pay to debit cards.
The credit union lawyers said none of NCUA’s five stated reasons for the conservatorship were valid, and even if one was invalid it would qualify the conservatorship as “arbitrary and capricious,” and thus, illegal.
“The Administrative Record illustrates that NCUA‘s actual reason for conservatorship was not any of the supposed grounds it stated publicly, but rather the threat of the ‘embarrassment’ NCUA’s Board feared it would suffer if it did not take public action,” the credit union’s lawyers argued.
The two sides are scheduled to meet this afternoon in a show cause hearing in federal court.
