- Key insight: The former CEO of Jackson Area Federal Credit Union admitted to running an embezzlement scheme that left the institution with a crushing $95 million deficit.
- Supporting data: The stolen cash funded a lavish lifestyle with $15 million in personal credit card payoffs, $3.3 million in high-end jewelry and handbags, and real estate remodels.
- Expert quote: "We community bankers simply want Congress to hold hearings on credit unions' tax status, to see if it's still justified." —Brad Bolton, president and CEO of Community Spirit Bank, in Red Bay, Alabama
A staggering $95 million embezzlement scandal at a small Mississippi credit union has sparked renewed demands by community bankers that credit unions be required, like most other nonprofit organizations, to publicly disclose CEO pay.
On Wednesday, the Independent Community Bankers of America urged Congress and the Treasury Department to strip federal credit unions of a long-standing disclosure exemption, citing embezzlement by the CEO of Jackson Area Federal Credit Union, in Jackson, Mississippi.
The National Credit Union Administration placed the $162.4 million-asset JAFCU
Since the heist was uncovered, the difference between JAFCU's stated and "actual" financials has been calculated as "a deficit of at least $95 million," the lawsuit stated.
The NCUA did not respond to requests for comment.
Form 990s
Leigh Bridges allegedly routed millions of dollars through a bank account that her husband had set up at the credit union to evade scrutiny from bank examiners.
The theft allegedly began in 2015, when Bridges was chief financial officer, seven years before her promotion to CEO. The NCUA's lawsuit states that Bridges transferred nearly $15 million to pay off an American Express credit card, spent $3.3 million on jewelry and designer handbags, and bought luxury cars from a Mercedes-Benz/Porsche dealership. The branch manager remodeled a home in Honduras and bought a collection of $2,000 designer handbags, the complaint states.
Michael Emancipator, the ICBA's senior vice president and regulatory counsel, said that if the credit union had been required to file Form 990 public disclosures, the embezzlement scheme would have been discovered sooner.
Form 990 is the annual information return that most tax-exempt organizations must file with the Internal Revenue Service — and make publicly available — to provide transparency into their finances and governance. Federal credit unions are currently exempt from the requirement because they are classified as "instrumentalities of the United States," a legal classification for entities that serve a specific public interest.
"This is example No. 1 why federal credit unions should file Form 990s," Emancipator said. "One of the purposes of Form 990 is to tamp out waste, fraud and abuse from tax-exempt or government-subsidized organizations."
Banks and credit unions have long been at odds because banks pay federal and state income taxes, while credit unions have a century-old federal tax exemption as not-for-profit cooperatives owned by their members.
Federal credit unions and churches are the only tax-exempt organizations that do not file Form 990s, Emancipator said. By contrast, state-chartered credit unions are not exempt from the filings.
ICBA claims the exemption provides an unfair advantage and masks financial irregularities that would otherwise be disclosed.
"We're somehow putting federal credit unions on the same level as churches here, and from that logical standpoint, it just doesn't hold water," Emancipator said.
The ICBA recently submitted a formal checklist to the Treasury Department's Form 990 Transparency Initiative, arguing that forcing federal credit unions to file the form would enhance public accountability, provide early red flags that could unmask internal fraud and give the IRS data to determine if federal credit unions are fulfilling their public mandate.
Tax status
Community bankers are also using the embezzlement to allege that credit unions lack accountability and to lobby Congress to revisit their tax-advantaged status. Those tax advantages have long been a sore spot for banks that compete against credit unions.
Brad Bolton, president and CEO of $225.1 million-asset Community Spirit Bank, in Red Bay, Alabama, questioned whether Leigh Bridges would be banned from the industry, and whether the NCUA is investigating the credit union's board.
"If that were a bank that failed, you know the Federal Deposit Insurance Corp. would be coming after the board," said Bolton, a past ICBA chairman. "We community bankers simply want Congress to hold hearings on credit unions' tax status, to see if it's still justified, which we think it is not, [because] they have long left their mission."
The community banking sector has long contended that large credit unions have drifted far from their original mandate of serving people of modest means, pointing to the trend of tax-exempt credit unions aggressively purchasing tax-paying community banks.
The ICBA said it is coordinating with the Trump administration and Congress to advance legislative reforms that could potentially sunset federal tax exemptions for any credit union managing over $1 billion of assets.
"It is past time for policymakers to take action," said Rebeca Romero Rainey, ICBA's president and CEO, in a statement. "The sensational and deeply troubling news of a major embezzlement scheme at a credit union that enjoys taxpayer subsidies and regulatory advantages over tax-paying community banks demands a response from policymakers."
The NCUA's civil lawsuit seeks to recover the stolen funds.
"The information for the shared accounts of Leigh and Chad Bridges shows over $51 million dollars in false entries from the year 2015 until the present," the complaint states.
