In a courtroom in the U.S. District Court for the District of Columbia last week, the NCUA tried to convince a federal judge to let it continue conserving Vensure Federal Credit Union.
The agency argued in its briefs that U.S. District Court Judge Rosemary Collyer should finalize her initial finding, expressed during a hearing on May 11, that the NCUA had cause to conserve the credit union.
"It may be that had Vensure management been allowed to maintain the business through this perfect storm of events, they would have been able to hasten their attention to new lines of business," the agency quoted Collyer as saying during the hearing. "But they did not do so for months and months, and I don't think can now be heard to cry wolf that they haven't been given the opportunity once the perfect storm happened."
The NCUA was responding to an argument that the credit union had advanced after the May 11 hearing but the credit union did not issue a redacted version of its briefing, which remained under seal.
The NCUA took over the formerly New York-based and now Arizona-based credit union on April 15 after its largest member account was frozen as part of a federal investigation into the processing of transactions tied to Internet poker websites. The credit union sued the agency, charging, in part, that it had ignored the steps the CU had taken to diversify its operations and that the agency had moved on the CU out of the fear of embarrassment.
In her May 11 statement, Collyer agreed with the agency that it had been concerned with Vensure's viability for a very long time and that the move to Arizona and change of name "without clarity as to who’s in charge or what business it’s in" made the situation worse.
Collyer said that the conservatorship had not been the fault of the NCUA. "It happened because of criminal enforcement or investigation," she said. "This is not to suggest that Trinity [the depositor of the closed account] engaged in any criminal behavior, I have no idea. But there is a criminal investigation going on which led to an order to seize or freeze Trinity assets which meant Vensure didn't have access to them anymore."
The NCUA noted that because it had agreed with Collyer's previous, preliminary decision, it restrained itself to rebutting the credit union's arguments against it.
For example, the NCUA countered Vensure's argument against Collyer's preliminary with the contention that the CU had not offered any new arguments about why her opinion had been wrong.
"Plaintiff may disagree with NCUA's decision, but this disagreement is not a basis for the Court to disregard the well-established principle that the agency's judgment is entitled to deference and a presumption of regularity," the NCUA argued.
The agency also argued that, contrary to its claims, Vensure had no plan in place to handle the risk of having Trinity's funds seized or frozen and that it was this risk, more than any question of legality, that led to the conservatorship.
"This case is about NCUA's concerns over the risk created by Vensure's overconcentration and reliance on a single source for virtually all its income, and Vensure's continuing unwillingness to protect the assets of the credit union from the exposure posed by that risk," the NCUA argued.
"The court has found," the agency concluded, "the NCUA repeatedly encouraged Vensure to add and build traditional credit union services, but Vensure failed to do so. Accordingly, on April 15, 2011, when Vensure abruptly lost virtually all of its potential future income, the NCUA was fully justified in stepping in and taking over the credit union. On that day, the risk became a reality and the institution’s net worth began to decline, placing the assets and the interest of the members and the NCUSIF at significant risk."