NCUA Named as Latest Defendant in New London Security Federal Credit Union Legal Disputes
More than two years since New London Security Federal Credit Union was liquidated after alleged investment fraud led to its collapse, a number of lawsuits are still pending to recoup nearly $12 million in losses with the latest naming the NCUA as a target.
In July, five persons filed a motion in the U.S. District Court in Bridgeport, Conn., claiming the NCUA was negligent in oversight of New London, which lost nearly $12 million after financial advisor Edwin Rachleff, now deceased, allegedly committed fraud with the CU's investment accounts.
The latest motion from the plaintiffs cited the NCUA Office of Inspector General material loss review report released in fall 2009 that said New London's management failed to implement adequate internal control over the CU's investment activity. The OIG also acknowledged that NCUA's examiners failed to adequately evaluate the risk in New London's investment program.
Robert Reardon, the attorney representing the plaintiffs, could not be reached for comment.
NCUA would only confirm that a motion relating to it and New London had been filed. In an Aug. 19 newday.com article, Reardon said the OIG report was the impetus for bringing a suit against the NCUA, calling it "a very detailed analysis of why this terrible financial loss occurred." NCUA spokeswoman Cherie Umbel said the agency had "no further comment at this time" on the most recently filed motion.
Reardon told theday.com, "My clients would like very much to have closure. They have lost a lot of money, they trusted this credit union, they trusted that the government was overseeing its operation and obviously there was gross failure involving everyone in overseeing this credit union."
Reardon said most of the five plaintiffs are retired and live on limited incomes. Two are over 70. For those reasons, he said, he is seeking an expedited jury trial.
"They could certainly use these funds and always intended to use these funds to support themselves in their retired years," he told theday.com
The same five plaintiffs who named the NCUA in their July motion filed a suit in June against five New London board members, a CU manager, Wells Fargo Advisors, auditing firm Beller, Shepatin & Co., Rachleff's wife, who is executrix of his estate, and a law firm that served as general counsel to the CU. Rachleff was an investment broker with A.G. Edwards & Sons Inc., which later merged with Wachovia Securities and then Wells Fargo. The plaintiffs are seeking to recoup $4 million.
In July, Beller Shepatin denied the NCUA's claim that it failed to detect fraudulent activity, an allegation made by the agency in a March 19 complaint. Starting at least in 1994, the CU used the firm to conduct audits and reviews of its financial statements, including accounts with A.G. Edwards & Sons. In several reports, the accounting firm concluded that the statements fairly presented, in all material respects, the financial condition of the credit union, the NCUA said in its March complaint.
Acting as the liquidating agent, the NCUA said Beller Shepatin "had a duty to exercise the degree of skill, diligence, and professional care that an accounting firm should exercise in performing audits and reviews in accordance with the code of professional conduct." But the firm failed to meet those standards, the agency said.
The suit also charges that, among other lapses, the firm failed to properly request confirmation of the accounts being audited, failed to adhere to proper standards by maintaining control over the entire confirmation process and failed to detect, identify and question the inconsistencies and differences in the account statements it received for the two separate CU accounts at A.G. Edwards.
Earlier this year, the NCUA filed a complaint against Wells Fargo, claiming it too had a duty to supervise Rachleff and should also be held accountable for the CU's losses.