NCUA liquidates troubled Melrose Credit Union

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The National Credit Union Administration on Friday liquidated Melrose Credit Union.

Melrose CU is located in the Briarwood neighborhood in the New York City borough of Queens. It currently has $1.2 billion in assets, down from $1.9 billion just two years ago.

The regulator said Teachers Federal Credit Union, Hauppauge, N.Y., immediately assumed all of Melrose’s members and shares, as well as some loans and other assets. Teachers Federal Credit Union has assets of nearly $6.1 billion and serves 300,541 members, according to the credit union’s most recent call report.

According to a statement from NCUA released late Friday, the new Teachers Federal Credit Union members should experience no interruption in services, and their accounts remain federally insured by the National Credit Union Share Insurance Fund.

Loan losses led to conservatorship

As CU Journal has reported, Melrose Credit Union was one of several NYC-area credit unions with heavy concentrations in taxi medallion lending that suffered significant delinquencies and losses in the wake of the rise of ride-hailing services such as Uber and Lyft. The credit union was placed into conservatorship early in 2017.

Recent call reports for Melrose CU paint a grim picture with loads of red ink. The last year the credit union reported positive net income was 2014, when it earned more than $6.8 million. Its net worth ratio as of Dec. 31, 2014 was a stellar 18.44 percent (“well capitalized”).

The downturn started in 2015, when the CU reported a loss of more than $176 million and its year-end net worth ratio plummeted to 10.69 percent (still “well capitalized”). In 2016, Melrose CU lost another $98 million, with its net worth ratio down to 5.73 percent (“undercapitalized”). Last year brought no relief, as it posted another breathtaking loss of $290 million, as its net worth ratio flipped to negative 13.79 percent (“critically undercapitalized”).

No apparent relief was evident in its June 2018 call report, which listed a loss of $171 million in the first 6 months of the year, and a net worth ratio of negative 32.04 percent as of June 30.

CU in court

In early August, the NCUA board filed administrative charges against Alan S. Kaufman, former chief executive officer, treasurer and board member of Melrose CU.

NCUA said it tapped an “infrequently used authority” to bring charges against Kaufman. The regulator is seeking a prohibition order against Kaufman and is requesting he be ordered to pay restitution of at least $3.5 million.

In addition, the NCUA board assessed Kaufman a civil money penalty of $1 million.

The seven-count notice of charges was filed with the Office of Financial Institution Adjudication. NCUA alleges Kaufman breached his fiduciary duties to Melrose CU by “placing his own interests above those of the credit union,” that he engaged in “unsafe or unsound practices,” and that he violated applicable laws and regulations.

The notice further alleges Kaufman benefitted from his actions and that he caused “severe financial loss” to Melrose. NCUA alleges Kaufman violated several relevant policies in place at Melrose CU, including its Fraud Policy, Prohibited Conduct Policy, Business Conduct Policy and Policy Regarding Bank Bribery Law.

“These practices and breaches involved personal dishonesty by Kaufman and demonstrated Kaufman’s unfitness to serve as a director, officer, and to otherwise participate in the conduct of the affairs of an insured credit union,” the charges state in part.

An evidentiary hearing has been scheduled before an administrative law judge of the Office of Financial Institution Adjudication on Sept. 28.

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Failures Law and regulation Medallion loans Crime and misconduct Financial crimes NCUA New York