The National Credit Union Administration has accepted a $3 million out-of-court settlement with a bank that held the deposits of the failed Franklin Community Federal Credit Union and the manager who embezzled about $20 million from the institution.
The settlement with Omahabased Firstier Bank came April 15, said agency staff attorney John Ianno.
The settlement resolves a suit the agency had filed in 1991. It had been scheduled to go to trial last month in the U.S. District Court for Nebraska.
In the suit, the agency said the bank held deposits from Omaha-based Franklin, its manager, Lawrence King, and corporations owned by Mr. King.
The agency said FirsTier knew or should have known that money moved inappropriately between the accounts, and severe overdrafts should have alerted the bank to some wrong-doing, Mr. Ianno said.
The bank had a duty to notify the credit union of the transactions but did not, Mr. Ianno said.
David A. Rismiller, chairman and chief executive officer of the holding company, FirsTier Financial Inc., said in the 1994 first quarter report that the bank made no admission of liability in the settlement, which has a confidentiality provision.
"The risk associated with this litigation was increased due to the fact that existing federal laws deprived FirsTier of the ability to assert important defenses, such as the negligence of the regulators in their supervision of the credit union," Mr. Rismiller said.
Mr. Ianno said the settlement was "reasonable."
Earlier in April the agency had settled a $6 million claim against two Omaha law firms that represented both Mr. King and the credit union.
In 1988 the agency liquidated the credit union at a cost of $38 million.
From the late 1970s through the early 1980s, Mr. King sold phony certificates of deposit from the credit union that fraudulently inflated its assets. He was sentenced to 15 years in prison in 1991.