An attorney representing the members who filed suit against IBM Southeast Employees Federal Credit Union confirmed that a settlement had been reached regarding alleged fraudulent investments sold through a third-party broker dealer that was working with the credit union.
Filed in 2009, the complaint said the $843 million credit union in Boca Raton, Fla., and its representatives negligently solicited and referred its members to Wellstone Securities LLP, a now-defunct broker-dealer. Wellstone recommended and sold bonds issued by Cornerstone Ministries Investments Inc. to the members, according to the complaint. Cornerstone later filed for bankruptcy and members who purchased the securities allegedly lost millions of dollars.
The complaint said more than 100 members in Florida and Georgia purchased $10.5 million of the securities.
David Rothstein, an attorney with Dimon, Kaplan & Rothstein P.A., told Credit Union Times, “We can represent that the parties reached an amicable and business-like settlement, without any admission of liability that enabled both parties to avoid the costs and risks associated with protracted litigation.”
A comment from IBM Southeast Employees FCU was not available.
According to the settlement, the credit union is set to pay the members $950,000 and, as well as assign them rights, $8.9 million in reimbursements sought through CUNA Mutual Group’s CUMIS Insurance Society.
The 2009 complaint charged the credit union and several of its representatives with negligent violations of the Securities Act of 1933 and the Georgia Securities Act.
The complaint alleged that the defendants negligently recommended and referred its members to Wellstone where members purchased alleged worthless bonds and other securities issued by Cornerstone.
According to the complaint, the credit union representatives actively solicited members to purchase Cornerstone securities through Wellstone. However, IBM Southeast Employees FCU negligently misstated and omitted to state material facts, including Cornerstone's past adverse regulatory history, as well as facts about the creditworthiness of Cornerstone and its securities.
At the time of the 2009 complaint filing, IBM Southeast Employees FCU, speaking through its law firm, said the lawsuit “was rife with inaccuracies.”
“In our view, it is just one more ripple in the growing tide of legal actions brought by unfortunate victims of either fraud, their own bad judgment or our troubled economy, who now hope they might recover their losses by imposing blame on the nearest deep pockets,” the law firm said on behalf of the credit union.