In Latest Salvo, Lafayette Chairman Says More Members Could be Sued
KENSINGTON, Md. -- In a second message in three weeks Arnold Rosenthal, chairman of the board of the $320 million Lafayette Federal Credit Union, has lashed out at members who opposed the credit union's attempt to change to a mutual bank charter and threatened to sue some who have been circulating a petition seeking a special meeting at which some or all of the board could be recalled.
He also stated that the claims of dissident members that the credit union was unresponsive to their questions and their desire to seek documents "absolutely false."
The credit union already has lawsuits filed against its former CEO, Bill Brooks, and his son. Their lawyer, Richard O'Connor, has said the suit will be contested vigorously.
The undated letter appeared on the CU's Web site, www.lfcu.org, on Feb 20. A previous letter, dated in late January, was sent to all the members, but it is unclear whether this letter was, or would be, sent.
Rosenthal noted that Lafayette had conducted six separate "town hall" style meetings with large SEGs, sent three separate disclosure documents regarding the issue to all the members and called on many members individually to answer their questions.
"As you may see from our responses and past communications, we were and continue to be completely forthcoming in responding to any and all member questions," Rosenthal wrote. "Indeed, on November 18, 2006, our President, Michael Hearne, met personally with two of the Petitioners and not only answered all of their questions but provided them access to any and all documents that they requested. Lafayette Federal Credit Union was always willing to meet with anyone at any time to answer any questions that they may have had."
But members opposed to the charter change contended that the CU failed to answer questions at the town hall meetings and that the mailed disclosures raised more questions than they answered. They also pointed out that the meetings to look at documents came with a requirement that members participating sign a nondisclosure agreement and thus not be allowed to talk about what they found there.
A review of the exchange of letters between the members and the credit union also indicates that the members at the time raised the issue of receiving only verbal responses to their questions in a meeting and not written responses. In response to this particular point, a letter from the credit union's supervisory committee said that Rosenthal and Lafayette CEO Michael Hearne were "within their rights" to decide that the best way to answer members' questions was in person.
This point seems to be central for in its letter Lafayette's leadership insists on the face-to-face meeting with the nondisclosure agreement rather than answering the members' questions in writing as they asked. Rosenthal went on to charge that the members circulating the petition for the special meeting "continued to send redundant requests that were 'ghost written' by non-members, including we believe by an attorney working for a professional lobbying effort opposed to our credit union." Members opposed to the conversion could not be reached for comment on the allegation, but have denied in the past that they retained any lawyers. The National Center for Member Trust, a group that Rosenthal accused in the January letter, also denied having done so.
Rosenthal also attacked the petitioning process, calling the circumstances under which many members signed "false and misleading" and calling some of the petition circulators "interlopers" whose intent was to solicit signatures without any regard for the truth.
Some of the things that Rosenthal alleged members were told by petition circulators included "it's all about insider greed to reap millions in windfalls...you will lose ownership control...you will lose your vote...there was not sufficient disclosure to members...we asked to review the materials of the Board, but they refused...the petition is being circulated in opposition to the conversion...by signing this you'll be essentially voting against the conversion...sign here...you do not even have to go to the meeting."
"Please know that the conversion proposal was never 'about insider greed,'" Rosenthal wrote. "[T]he Board voted unanimously to not accept any compensation or stock benefits. Nor would any member have lost their vote or ownership control; the proposal was a conversion to a mutual thrift with substantially identical ownership, control and voting mechanisms as a credit union."
Adam Schwarz, vice president for public affairs for the National Cooperative Business Association confirmed that he, and others, who believed passionately in members' rights, had urged members to sign the petition. But he also pointed out that members' statements were not "false and misleading."
For example, members have noted that while the board reported having voted unanimously not to accept compensation or stock from the conversion, there was nothing to keep them from voting to do so later, as a bank. The same was true about membership control.
Also, bank boards are allowed to vote their member's proxies, a practice that is not allowed in credit unions. There was no guarantee that the credit union standard of one member, one vote that Lafayette had promised to retain, would necessarily remain in place.
Since the members have not yet submitted their petition, sources familiar with the issue said they interpret Rosenthal's letter as being a preemptive strike, a way of declaring in advance that the credit union would ignore the members' petition, not hold the special meeting and essentially thumb its nose at its own bylaws.
"Why should they hold the special meeting," asked one member who supported the petition, but who said he would rather not give his name and risk being sued. "They have already seen that if they don't hold one nothing will happen to them just like the credit union in Michigan."
Michigan's largest credit union, DFCU Financial, also had an application to convert to a mutual bank that it withdrew and then refused to hold a special meeting, even when members completed a petition in accordance with the CU's bylaws. --email@example.com