R.I. Panel Finds Officials Withdrew Funds Just Before Crisis
A commission investigating the roots of the Rhode Island credit union crisis concluded its first phase of public hearings last week after throwing the spotlight on various officials who withdrew funds only days before institutions were closed.
The hearings, televised live from 4 to 10 p.m., reportedly drew large audiences of frustrated citizens looking for somewhere to pin the blame.
Seven months after the crisis became public, more than $1 billion in deposits remains frozen at a dozen financial institutions in the state. Among the largest shuttered institutions are Marquette Credit Union, with $300 million in deposits, and Rhode Island Central Credit Union, with $230 million.
Meanwhile, the state is still trying to get the federal government to provide a guarantee on borrowings so it can expedite payments to depositors who have been shut out.
During the hearings, credit union executives repeatedly invoked the Fifth Amendment rather than explain why they withdrew money just days before their institutions were closed.
On Jan. 1, Gov. Bruce G. Sundlun declared the Rhode Island Share and Deposit Indemnity Corp. insolvent and closed 45 institutions that were backed by the private company.
Peter Nevola, president of the Rhode Island insurance company, was among those called to testify. He invoked the Fifth Amendment.
So did John R. Lanfredi, chief executive of Rhode Island Central Credit Union and treasurer of the private insurance company. Still, the commission's members asked why he withdrew $284,000 from his credit union on Dec. 21, even though he had to pay $11,000 in early withdrawal penalties.
V. James Santaniello, a lawyer for the defunct Rhode Island insurance company, withdrew $120,000 from two credit unions on Dec. 20 and 21. He told the commission he did it because everyone else was also making withdrawals. In an ironic twist, Mr. Lanfredi actually tried to persuade him not to make the withdrawals, according to Mr. Santaniello's testimony.
One of the commission's investigators, John W. Nields Jr., who was chief counsel on the Iran-Contra inquiry by the House, said the executives could be ordered to restore withdrawn funds.
The commission, a nine-person panel created by the state legislature, heard from about 50 witnesses in the public sessions. The panel also took testimony from 60 people in private sessions beginning in April.
160,000 Accounts Frozen
A majority of the 45 institutions closed at the first of the year have since reopened with federal insurance. But several institutions are so burdened by bad loans that they cannot secure federal insurance from the National Credit Union Administration. A total of 160,000 accounts are inaccessible.
To provide some relief, the state's two U.S. senators, Democrat Claiborne Pell and Republican John H. Chafee, introduced a bill last month that would provide the state with $150 million to repay depositors. The Pell-Chafee measure would also guarantee up to $350 million in loans to the state to reimburse depositors.
In the House, Rep. Henry B. Gonzalez, D-Tex., has attached an amendment to the broad banking reform bill that would guarantee Rhode Island loans to $180 million.
The state legislature, too, is considering a bill to provide $500 million in aid.
Separately, the Depositors' Economic Protection Corp., a state agency, took over Rhode Island Central late last week. Depositors will receive some unspecified percentage of their deposits as the institution is liquidated.
PHOTO : Consumer Money Index Source: Bank Rate Monitor, North Palm Beach, Fla. 33408.