Five members of the defunct New London Security Federal Credit Union have filed a lawsuit to recoup $4 million claiming board members, staff and the CU's accounting firm among others were negligent in supervising its financial adviser.
The adviser, Edwin Rachleff, was also an investment broker with A.G. Edwards & Sons Inc., which later merged with Wachovia Securities and then Wells Fargo, who handled investments for New London. The CU was declared insolvent and liquidated in 2008 by the NCUA as a result of mismanagement by the deceased Rachleff. The losses totaled nearly $12 million.
Filed in June, the members' complaint named several entities responsible for the losses including five board members, a CU manager, Wells Fargo Advisors, auditing firm Beller, Shepatin & Co., Rachleff's wife, who is executrix of Edwin's estate, and a law firm that served as general counsel to the CU. Robert Reardon, the attorney representing the plaintiffs, was in court this morning and not immediately available for comment, a law firm staffer said.
The NCUA had previously filed lawsuits against Wells Fargo and Beller Shepatin for professional malpractice for failing to detect fraudulent activity. In June, attorneys for Beller Shepatin denied the claims. A material-loss review from the NCUA's Office of Inspector General found that the agency's examiners failed to adequately evaluate the risk in New London's investment program. The OIG also said New London's collapse was caused by several factors including the lack of a safekeeping/custodial agreement with a third-party independent of the account manager.