CLEVELAND – NCUA asked a federal court last week to reverse its earlier order and reject a request by a tiny Ohio church for documents related to the agency’s denial of a $1.5 million insurance claim in the spectacular failure of St. Paul Croatian FCU.
The tiny church, Holy Love Ministries, claims NCUA officials committed fraud when they allegedly told the Church a day prior to the takeover of the $240 million credit union that the Church would be allowed to withdraw the funds under so-called hardship rules. But NCUA eventually denied the claim and paid the Church the maximum $250,000 allowable under federal deposit insurance rules, leaving it with a $1.5 million loss-the biggest of any depositors in the fraud-ridden credit union.
NCUA told the U.S. District Court for the Northern District of Ohio last week that the federal court does not have jurisdiction over the Church’s claim until the Church has exhausted its administrative remedies by filing an additional action under the Federal Tort Claims Act. “Therefore, this Court should reconsider its prior order, deny (the church’s) motion to allow discovery, and determine this appeal of the NCUA Board’s insurance determination on the administrative record,” said the credit union regulator.
Holy Love has recently filed a claim under the tort act and is awaiting an NCUA decision.
Lawyers for the Church, which had its own representative on the credit union board, said NCUA mislead them when the Church’s director requested the day before the NCUA takeover to withdraw all of their funds and were told to wait until after the weekend.
Prior to an April 22, 2010 board meeting, the Holy Love representative on the Board told NCUA examiner Kim Paige he wanted to withdraw the Church’s deposits and was advised to wait until Monday, April 26, because the credit union was being examined and the withdrawal might create a problem with the exam, according to court records. When the Church representative also asked the interim credit union manager to withdraw the money he was told the same thing.
On the following day, NCUA called another Board meeting and dismissed the entire Board and put the credit union into conservatorship on April 24. That Monday, April 26, NCUA liquidated St. Paul Croatian and allowed depositors a maximum of $5,000 withdrawal. That day NCUA posted a letter saying “On a case by case basis, the conservator will consider requests for an exception to this policy, for example in the event of an emergency to meet a previously established commitment, such as a home purchase.”
Holy Love, which had counted on its deposits to fund a $12 million building project, requested such a “hardship” exception on numerous occasions, as the work on its building project was already well under way. But NCUA denied all of its requests. “The offer seems to have been misleading or fraudulent,” claims the church in its court pleadings. Later, despite the April 26 NCUA letter, the Church was told no such hardship exception exists.
The Church says an internal NCUA report issued by the Office of Inspector General blames NCUA examiners for missing the massive fraud and asserts “This, in and of itself, should be sufficient to entitle Holy Love to a full refund of their monies.”
The tiny church is among dozens of St. Paul Croatian depositors who were stuck holding the bag for one of the biggest frauds in credit union history after NCUA apportioned out insurance payments. Other victims include: St. Mary of the Assumption Roman Catholic Church in the Cleveland suburb of Eastlake, where the credit union was based, a loss of $150,000; Cascade FCU of Kent, Wash., a loss of $251,000; Acme FCU of Eastlake, $127,000; and Employees CU of Dallas, a much smaller amount. At least three individual members have also filed suits against NCUA saying they have lost uninsured deposits. One elderly couple says it lost more than $500,000, the bulk of their retirement savings.
The credit union was victim to a massive fraud perpetrated by its CEO, Anthony Raguz, who confessed to accepting more than $1 million in bribes to approve tens of millions of dollars in loans the borrowers had no intention of repaying. A federal judge Friday sentenced an international crime figure, Koljo Nikolovski, to 18 years in prison for engineering as much as $6 million in fraudulent loans under the scheme. A well-known Cleveland developer is also awaiting trial for arranging almost $17 million of loans by bribing Raguz.
Holy Love has sought to no avail so far to obtain some of the proceeds in the millions of dollars in restitution order Nikolovski and the other borrowers who have pleaded guilty in the fraud.
NCUA does not comment on pending litigation.
