The controversies involving the liquidated St. Paul Croatian Federal Credit Union continue, with a 32-count complaint filed May 21 in U.S. District Court in Cleveland by the NCUA.
The regulator, acting as liquidator, is seeking to recover more than $18.9 million in fraudulent loans and damages from prominent Cleveland businessman A. Eddy Zai, Zai’s wife, Tina, and her father, Ted M. Vannelli. The family is alleged to be the largest recipient of fraudulent loans from the credit union, which was seized by the NCUA in May 2010 and cost the NCUSIF $170 million.
According to court documents, the Zais and nine business enterprises they owned, received several share-secured loans from the credit union from June 9, 2009 until the liquidation date. However, deposit accounts “failed to maintain sufficient funds … to properly collateralize the loans.” according to the NCUA’s compliant.
The suit documents detail how the Zai’s Cleveland Group of Companies paid loans with funds obtained from new loans to the tune of nearly $19 million and comingled funds and loan proceeds from St. Paul with accounts at the credit union and at other financial institutions.
The Cleveland Group owed, at the time of liquidation, $1.13 million in principal, but made $600,000 in payments during fourth quarter 2011. As of February, the Cleveland Group Accounts owe more than $504,000 plus accrued interest at the rate of 8.5%.
Another Zai family entity, Cleveland Development Accounts, owes on two loans, one with a balance of $2 million that is accruing interest at a rate of 8.0%, and one with a balance of $970,000 with an APR of 8.5%. The lesser of the two loans was used to pay for a loan obtained by a third company, Cleveland Construction, in the amount of $739,000 under Vanelli’s name.
A fourth company, Alpina, owes $2.3 million with an APR of 8.5%. A fifth company, Cleveland Environmental, owes two loans, one with a principal balance of $730,000 and another with a balance of $926,000. Both loans have an APR of 8.5%.
A sixth company, Cleveland Management, owes more than $1 million with an APR of 8.0%. The seventh company, Cleveland Flooring, owes two loans with a combined outstanding amount owed of $2.6 million at an APR of 8.5%. An eighth company, Cleveland Real Estate, owes nearly $2 million with interest at 8.5%.
The ninth company, Cleveland Excavating, owes two loans, one in the amount of $2.8 million and a second loan for $1.2 million outstanding. Both have 8.5% APRs.
Eddy Zai also had two loans at the credit union under his name. One has $923,000 outstanding, and the other has a principal balance of $963,000.
Tina Zai also had a loan in her name in the amount of $965,000. That loan was paid by the proceeds from a second loan under the name of Zai Accounts, which remains unpaid.
Vannelli also obtained loans in his name. One was in the amount of $934,000 but paid the loan with proceeds from the outstanding Alpina loan. Another had an outstanding balance of $512,000, but was paid off by proceeds from the Cleveland Excavating loan, which is still outstanding.
Additionally, the NCUA charges the group with attempting to hinder or delay the regulator’s ability to collect on the debts by setting up a new company that purchased the Cleveland Group shortly after Zai’s Feb. 7 fraud indictments.
Adam Blackman, a longtime employee and chief financial officer of the Cleveland Group filed articles of organization Feb. 1 to set up a new company in his name, International Regional Center. IRC bought Cleveland Group assets, including cash on hand, cash in at least 15 bank accounts, equipment and accounts receivable. The purchase was dated Feb. 12 and was funded by a $22 million unsecured loan that is subordinated to other IRC obligations.
As a result, the Cleveland Group was left with little to no assets from which NCUA could collect from as liquidating agent of the failed credit union. In the suit, the NCUA demands the IRC sale be voided and all assets returned to the Cleveland Group.
The initial hearing was May 24 under the gavel of U.S. District Judge John Adams. Zai and his wife were served with summons on May 23 at their home on Bolingbrook Road in the affluent east Cleveland suburb of Pepper Pike.
Zai was indicted on 37 criminal counts in February related to the fraudulent loans. The indictments and new suit brought by the NCUA represents a significant fall from grace for Zai, who was called a “business icon” by The Cleveland Plain Dealer, and who raised millions of dollars for real estate projects in the area, including a hospital expansion and a downtown hotel make over.
Another figure, Koljo Nikolovski, pleaded guilty earlier this year to 18 counts of bribery, bank fraud and money laundering for his role in receiving $5.6 million in loans and sending $2 million to bank accounts in the Balkan republic of Macedonia. Six other people pleaded guilty to bank fraud, including Nikolovski’s former wife, and agreed to testify against him. He was sentenced to 18 years in prison in April.
Former St. Paul Croatian CEO Anthony Raguz pleaded guilty to bank fraud and also agreed to testify against Nikolovski. In addition, Raguz admitted to accepting $1 million in bribes in exchange for approving more than 1,000 loans totaling $70 million to borrowers who had no intention of repaying them. Raguz is scheduled to be sentenced June 11.