Poor Due Diligence Enabled Criminals to Defraud BCT FCU
Broome County Teachers FCU officials failed to conduct proper due diligence when the failed Binghamton, N.Y. institution extended credit to a mother-and-son team that defrauded the credit union for $14 million, according to a CEO close to the case.
Scott Lonzinski and his mother, Laura Conarton, pleaded guilty Tuesday to fraud after the two created phony documents, forged signatures and created a fictitious persona in order to obtain approval for share secured loans from BCTFCU for a total of $14 million.
According to court documents, Conarton was a loan administration manager at a People’s National Bank for approximately 10 years, and used her knowledge of the bank’s policies to create fake certificate statements, signature cards and security agreements from PNB pledging the non-existent certificates as collateral for the loans.
The credit union shirked its due diligence by structuring the member business loans as consumer loans, said Frank E. Berrish, president/CEO of the $3 billion Visions FCU. Visions, located in Endicott, N.Y., purchased and assumed BCT’s assets after the NCUA placed the credit union into conservatorship as a result of losses from the fraud.
“The credit union had no experience in making commercial loans,” Berrish said. “They handled it as though it was a shared secured loan, so they didn’t do their due diligence.”
Additionally, the shares pledged as collateral were held by another institution, which is also bad risk management, Berrish said. He added that he heard the NCUA was critical of the loans before it was revealed they were fraudulently obtained.
“A $50 million credit union doesn’t make $6 million and $8 million loans, risking all its reserves for one member,” Berrish said. “It was not normal and what they did was out of ignorance. And for whatever reason, the board approved it.”
Credit union attorney Andy Keeney, partner in the Norfolk, Va., firm of Kaufman and Canoles, agreed that the credit union failed to exercise proper due diligence, saying BCT either lacked proper member business lending policy or didn’t follow it. Additionally, share secured loans should be secured by deposits at the lending institution, not another institution, he said.
“They definitely should have called the bank to confirm the validity of the certificates,” Keeney said. “In fact, they probably should have talked to bank management.”
Berrish said to his knowledge, the loans BCT extended to Lonzinski and Conarton were funded after Lonzinski’s construction company completed a remodel of a branch facility in Montrose, Pa., which is now a Visions FCU location.
Regardless of the timing, Keeney said loans to vendors require a series of checks and balances, similar to when loans are made to volunteers, to ensure proper due diligence.
Berrish said Visions retained all BCT employees when it purchased and assumed the failed credit union’s assets, with the exception of employees dismissed by NCUA at the time of the conservatorship, which include former BCT CEO Karen White.