One-Time CDCU Leader Charged In Fraud

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Carol Aranjo, long a leading national spokesperson for community development credit unions, was charged by NCUA last week in a civil suit with fraud and negligence in the 2003 failure of D. Edward Wells FCU, the CDCU she headed.

Aranjo, former chairman of the National Federation of CDCUs and who testified numerous times before Congress on community development, was charged with looting the defunct credit union for her personal benefit and the benefit of family and friends, along with a community development organization affiliated with the credit union, known as Friends of the CU, or FOCUS. The suit also claims that Aranjo cooked the books of the failed CDCU for several years to hide the various schemes from NCUA.

Also named in the suit are Michael Akers, former chairman of the credit union's supervisory committee; Mary Spruell, an officer with FOCUS; Aranjo's husband Alphonso Smith; and Aranjo's three sons, Douglas Smith, Paris Nadir and Alphonso L. Smith.

The suit claims Aranjo allowed the credit union to improperly use a $2-million community development loan from a Massachusetts insurance company, made an illegal loan to FOCUS, and regularly allowed herself and family and friends to run negative share balances, among other things.

Aranjo did not return phone calls seeking comment. Akers, Spruell and Alphonso Smith all have unlisted phone numbers.

Michael D'Orsi, a Boston attorney representing NCUA in the suit, said last week they did not know who was representing the defendants in the case. "Nobody's appeared yet and it's not surprising that nobody's appeared yet. We're still in the process of serving people," he said.

D. Edward Wells FCU is among half-dozen prominent CDCUs that have failed over the past few years, including Greater Harrisburg Community CU, Hacienda Community CU, KO-AM FCU, Nor-Car FCU, Oasis Community FCU and Randolph County FCU.

D. Edward Wells FCU, was taken over by NCUA in 2003 and the remnants of the insolvent CDCU were merged into Western Massachusetts Telephone Workers FCU. The failure cost the NCUSIF $2.9 million. It was chartered in 1959 to serve members of the Mt. Calvary Baptist Church and Brotherhood of Springfield. By the time of its liquidation the CU purportedly had more than $5 million in assets and officials were billing it as the largest African-American-owned financial institution in western Massachusetts.

Long-Held Suspicions

But NCUA long had suspicions of the accuracy of its finances and struggled for several years with Aranjo, who had become a national spokesperson for CDCUs. Aranjo had built up her reputation by testifying for CDCUs before Congress and for speaking against large banking mergers she insisted were draining financial resources from local communities like hers, a working-class city west of Boston. Later, she ran afoul of the mainstream credit union movement, which she said was not doing enough to aid CDCUs, then of the National Federation of CDCUs itself, which ousted her as chairman after she clashed with other board members.

In its suit, filed in U.S. District Court in Springfield, NCUA claims that Aranjo allowed family members and friends to run up negative share balances of as much as $1.2 million by the time the credit union was declared insolvent. The suit alleges Aranjo transferred more than $400,000 from other members' accounts to cover deficits in the accounts of her sons.

At the time of liquidation, NCUA claims Aranjo herself had a negative share balance of $343,866.

The suit claims Aranjo engaged in a complicated scheme to hide the financial condition of the credit union, including creating fictitious data processing records. For several years, Aranjo fought efforts by NCUA to examine the records, claiming she was being singled out for her outspoken criticisms. NCUA claims Aranjo would try to limit examiners' review of the books to particular times or subject areas; delay document production; provide documents piecemeal; or prevent examiners from copying records. She went to great lengths to prevent examiners from reviewing the FOCUS loans, the suit claims. Aranjo even filed suit in state court to restrain NCUA from examining the books, but the suit was rejected by the court.

Among the transactions targeted in the suit were a $2-million loan to D. Edward Wells FCU by the Massachusetts Property and Casualty Insurance Co. Community and Economics Development Initiative. The loan was recorded as a share deposit on the credit union's books, "thereby avoiding scrutiny of the loan by NCUA," said the suit. Aranjo, according to the suit, improperly used the loan proceeds to make loans to other entities in violation of the loan agreement. She also used the loan to prop up the credit union's declining capital position and its allowance for loan losses to fool NCUA examiners. The Massachusetts insurer has filed a civil suit against NCUA as liquidating agent of D. Edward Wells FCU to recover as much as $1 million it says it is still owed under the loan agreement.

Later, according to the suit, the credit union provided a $2-million line of credit to FOCUS, violating NCUA limits on loans to one borrower. Though NCUA ordered the credit union to bring the loan within the statutory limit, the credit union never complied with the order, according to the suit.

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