A federal probe into the failure of Capital Corporate Federal Credit Union, Lanham, Md., has triggered a letter war between the investigators and the investigated.

Last month, a National Credit Union Administration official fired off a missive to former Cap Corp members criticizing the company's erstwhile directors and officers for not cooperating with subpoenas and for hiring a lawyer.

Earlier this month, attorneys representing the former Cap Corp officials lashed back in letters to the credit unions that lost money in Cap Corp's failure, the industry's biggest.

The liquidating agent's recent letter contains many "inaccurate statements" and "demonstrates the serious risk of the NCUA invesigation spinning out of control," said a Jan. 3 letter from Ronald R. Glancz, a partner with the Washington firm Venable, Baetjer, Howard & Civiletti, which is representing former Cap Corp directors.

Bob Loftus, NCUA director of public and congressional affairs, shrugged off the letters' charges.

"NCUA has the full authority to investigate this area," he said. "This was a significant failure, and something we would be derelict in not pursuing."

Mr. Glancz was responding to a Dec. 15 letter to former Cap Corp depositors by J. Leonard Skiles, president of the agency's asset liquidation management center and liquidating agent of the defunct corporate. Mr. Skiles sent the letter as an update on the liquidation

The regulator's letter was to keep former depositors informed of the progress of the liquidation and noted that the institution's old headquarters has not yet been sold off. It also said that some former officials aren't cooperating with the investigation into Cap Corp's failure.

Mr. Skiles wrote: "Through counsel, these individuals have objected to significant portions of our subpoenas and are questioning our authority to subpoena documents."

The regulator also charged that by hiring counsel, the officials are diluting possible future recoveries from the agency's fidelity coverage. The parties' legal fees are being paid for by the corporate's fidelity insurance, a "wasting" policy that will sap the amount of bond coverage.

Letters to depositors from Mr. Glancz and Robert M. Krasne, an attorney with the Washington firm Williams & Connolly who is representing Cap Corp officers, said the officials were in their rights in questioning the subpeonas.

The officials have turned over all Cap Corp documents but so far have declined to submit personal financial records and diaries the agency requested in sweeping subpoenas issued in October, the lawyers said.

Mr. Glancz said the Cap Corp officials and the NCUA are trying to decide on a neutral party to receive the documents.

"We want to resolve this thing," Mr. Glancz said.

The lawyers also argued that by representing their clients, they can ensure the NCUA won't use money from the Cap Corp liquidation to pursue frivolous claims.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.