A case involving a widow who opened up a brokerage account with the defunct, CU-formed XCU Capital LLC, its shell later bought by State Employees' Credit Union, is in the middle of a regulator and legal quagmire.
The New York Times first reported on the story of Helen Cohen, a widow, now deceased, who bought an investment account from what it says was SECU in September 2005. A broker suggested Cohen buy a real estate investment with a company that owned a Florida apartment complex. According to the article, Cohen could make a tax-free exchange of an apartment building that she owned for 30 years and defer capital gains on the sale. Cohen invested $1 million but a trustee later discovered that the apartment complex was financed with an interest-only loan and other factors that might result in a significant loss.
Cohen's trust eventually lost $700,000 through the failed real estate investment and the trustee filed a claim in 2009 to recover that amount plus $2.6 million in damages, the New York Times reported.
The case is now set to go before a Financial Industry Regulatory Authority hearing Feb. 21 to 28 in San Diego, Arthur Leider, who represents Cohen's trust as president of Investors Arbitration Specialists, told Credit Union Times.
Jim Blaine, president/CEO of the $21 billion SECU, in a response sent to the New York Times reporter, which he also provided to Credit Union Times, said the article was "definitely not up to 'the standard of the Times,'" while offering more details on the Cohen case.
Blaine said XCU Capital, a broker-dealer and investment advisory firm, launched by then Xerox Federal Credit Union, was bought by LPL Financial in September 2007. SECU acquired XCU's corporate brokerage shell in January 2008 after all accounts had been transferred to LPL. The brokerage charter was moved to North Carolina and renamed SECU Brokerage Services in May 2008. Blaine said Cohen does not have an account with SECU Brokerage.
"[Our] due diligence found no existing complaints/liabilities associated with XCU Capital," Blaine said, noting Cohen's complaint was filed in May 2009. "SECU, under California law, has been placed in the position to arbitrate/litigate this matter. A position which continues to amaze us. All parties currently characterize themselves as victims."
Blaine criticized the New York Times article, saying "the merits of this case do need to be resolved, but hopefully you can understand our concern with the implications of your article."
He goes on to say: "We would like to yell slander, libel, retraction, apology; but perhaps from the New York Times perspective, the word 'treasonable' best applies.Treasonable? Yes, treasonable, since many of your critics say the newspaper has lost its way, is past its prime, and the quality of journalism represented by your article certainly gives 'aid and comfort' to your enemies."