Since discussions to settle a case involving an $11.8 million loss from the defunct New London Security Federal Credit Union fell through, the NCUA has moved forward with a suit to recover the misappropriated funds.
According to the Jan. 29 suit, the case involves Edwin Rachleff, a deceased investment broker and financial adviser for A.G. Edwards & Sons Inc., which later merged with Wachovia Securities and then Wells Fargo, who handled investments for New London. Rachleff allegedly created fake account statements that showed the CU was worth $11.8 million, according to the NCUA. The funds were supposedly deposited into the CU's account from 1998 to 2003. However, the funds NCUA is seeking were not there. As a result, the CU was declared insolvent and then liquidated. Rachleff committed suicide in July 2008 on the same date of the CU's liquidation.
In December 2009, an NCUA spokesman told Credit Union Times that the agency was discussing a possible settlement with Wells Fargo and New London's outside accounting firm. The regulator said at the time if a settlement was not reached, it would pursue legal action.
The NCUA said as a result of Wells Fargo's negligence, New London became insolvent and the NCUSIF had to pay out $9.7 million for the insured investments, according to the suit. The regulator said it continues to remain exposed to liability for additional sums stemming from claims for the uninsured investments of member investors who may have claims against the insolvent estate.