VENSURE: NCUA IS WILLING TO LET CU 'WITHER ON THE VINE'
WASHINGTON-Lawyers for Vensure FCU, the Arizona credit union processing millions of dollars in online poker bets that was taken under conservatorship April 15, told a federal court that NCUA is content to let the tiny credit union "wither on the vine" and self liquidate during the conservatorship.
The lawyers, arguing for the release of the $4.7-million credit union from the NCUA hold, insisted that its main source of business, the processing of online bets, is legal and should not be a hindrance to the continuation of the credit union as a going concern.
NCUA has maintained the gambling business is illegal under the Uniform Internet Gambling Act and because it is the credit union's sole source of income its elimination will render the credit union insolvent.
Both sides agree that the Mesa, Ariz.-based CUs has expended virtually all of its capital during the four-week conservatorship and is one the verge of insolvency without its sole source of income during that time. During a hearing on the case last week, Elizabeth Whitehead, NCUA Region Five director in charge of the Vensure conservatorship, conceded the CU's dwindling assets, saying "this credit union is going to be insolvent in a couple of weeks."
NCUA took the CU over hours after the U.S. Justice Department indicated 11 international gambling figures for violating the Internet gambling statute and froze $3 billion of their funds in some three dozen accounts, including $2 million in a Vensure account. That account is owned by Trinity Global Commerce, a company that processes gambling bets for the two biggest online poker sites, PokerStars.com and FullTiltPoker.com.
But the CU's case may be moot in a matter of days, as growing expenses continue to eat its capital, which was a robust $1.7 million, or 33%, the day NCUA took it over. Almost all of those funds have been expended since then and less than $150,000 is believed to remain.
"NCUA is now-by its own admission-essentially allowing VFCU to wither on the vine," said the Vensure lawyers in legal documents challenging the conservatorship. "NCUA is not acting aggressively to see VFCU through temporary difficulties so that VFCU can continue to expand its operations and serve its members. Instead, NCUA is largely standing by while temporary difficulties unnecessarily destroy the substantial enterprise value VFCU had until the NCUA takeover.
"NCUA's action in this matter," argued the Vensure lawyers, "is an example of the deficient exercise of power for which serious judicial review is the only remedy. NCUA's takeover should be declared invalid and enjoined, and control of VFCU should be returned to its rightful management forthwith-while there is still a possibility of truly conserving VFCU's value."
NCUA has seven days to respond to the credit union's argument.
NCUA SEES $1.5B IN LOSSES FROM 3 CORPORATE FAILURES
ALEXANDRIA, Va.-NCUA reported that last fall's three corporate credit union failures, of Southwest Corporate FCU, Members United Corporate FCU and Constitution Corporate FCU, are expected to bring losses of $1.5 billion after the final toll.
The loss estimates-$980 million for Southwest; $400 million for Members United and $145 million for Constitution-come after the three failures erased almost $1.6 billion of capital held by members of the three corporates.
The latest loss estimates are included in a new report issued by NCUA's Office of Inspector General which is conducting material loss reviews for the three corporate failures. Those reports are expected to be issued in July.
NCUA has liquidated the three corporate failures, as well as U.S. Central FCU and WesCorp FCU, as part of its corporate resolution plan estimated to cost credit unions as much as $16 billion.
The report also disclosed for the first time losses incurred by the National CU Share Insurance Fund from several other big credit union failures last year: Utah's Family First FCU, $21.5 million; Oakland Municipal CU, $13.7 million; New Mexico's Land of Enchantment FCU, $1.1 million and Philadelphia's Phil-Pet FCU, $1 million.
AGENCY IS TRYING TO REVIVE COMM. DEVELOPMENT FUND
ALEXANDRIA, Va.-The NCUA Board made several proposals aimed at kick-starting the agency's Community Development Revolving Loan Fund, which hasn't made a loan in more than a year and, as a result, is sitting on almost $15 million of cash.
The proposals would expand the number of credit unions eligible for the funds from the current 1,500; allow NCUA to charge interest of less than the current 1%; award loans greater than the $300,000 limit and use the unexpended funds for emergency lending to eligible credit unions.
The proposal, according to NCUA Chairman Debbie Matz, is aimed at increasing lending by the fund and expanding assistance to low-income credit unions.
The community development fund was created in 1979 with an initial appropriation of $6 million but due to assiduous lobbying by NCUA and credit unions has grown to almost $20 million and is used now to fund both long-term liquidity needs and short-term funding for smaller needs through its grant program. But the low-interest rate environment combined with slack loan demand as dried up demand for the loans, leaving the NCUA fund with the large cash horde.
The proposal has been issued for a 60-day public comment period.