Slapped with a lawsuit, the board of Patelco Credit Union has vowed to allow an internal investigation of management abuses.

Directors at the nation's 14th-largest credit union are being sued by members of its supervisory committee who want the courts to ensure an internal probe is completed.

The suit charges that six of nine directors, including Patelco president and chief executive Edgar F. Callahan, have illegally obstructed the committee's efforts and have attempted to oust two of its members through a rigged election.

Also listed as defendants are the credit union and up to 50 unnamed individuals or organizations working on behalf of the six directors.

The complaint, filed March 16 in the superior court of California in San Francisco, seeks an injunction against any further board interference.

"Unless enjoined by this court, plaintiffs are informed and believe . . . that defendants will continue to interfere with and otherwise impede the investigation," according to the 15-page suit.

Last Tuesday the committee filed a motion for a preliminary injunction; the court will hold a hearing on that motion on April 7.

But in an interview Thursday, Mr. Callahan said that the board won't wait for a court order to let the supervisory committee's investigation proceed and that the probe is "ongoing."

"There will be nothing done to impede the investigation, including restricting the availability of funds," he said.

But sources said that Patelco had to be dragged to this position. Apparently the directors filed a cross-complaint with the superior court that alleged the investigation was biased and sought a restraining order to stop it; the court denied the motion last week.

Mr. Callahan declined to comment on specifics of the suit or on whether he had retained an attorney.

Members of the supervisory committee could not be reached for comment. Dale Fredericks, an attorney representing the committee, would not comment.

The legal scrap is the culmination of a two-month struggle between the board and the supervisory committee, which is a separate entity.

The supervisory committee on Jan. 30 received allegations that Patelco directors and management had forged documents and intimidated employees, among other charges, according to the suit.

The supervisory committee went to the board at least three times asking for resolutions authorizing it to hire professionals to conduct an examination; the board snubbed the committee each time, the suit states.

Mr. Callahan said the board was concerned about the amount of money the committee wanted to spend, and wanted an outline of the investigation to see if the expense was justified.

"It ended up in a personality conflict, with the supervisory committee feeling they were being manipulated," he said.

According to the suit, the board asserted that only it had the authority to perform an investigation. The directors stuck to this position even after the National Credit Union Administration and the California Department of Corporations, which regulates credit unions, told Patelco to let the investigation proceed.

The NCUA also told the credit union it would not be allowed to merge with First Technology Federal Credit Union until the investigation was completed. On March 3 the two institutions withdrew their merger application.

Beyond being obstructed, the supervisory committee charges it was being intimidated.

The board planned to use proxy votes to oust the committee's chairman and another member in a planned March 21 election, the suit said. This move was blocked by the state regulator, which told the board not to hold the election.

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