New London Recoups Still Pending
Mark Fetcher doesn’t care why New London Security Federal Credit Union failed back in 2008.
He just wants his money.
July 28 marked the fifth anniversary of the collapse of the New London, Conn.-based credit union. The same day the NCUA seized the credit union, 82-year-old Edwin F. Rachleff, who was the A.G. Edwards broker who handled the credit union’s investments, committed suicide by jumping off an apartment building. Roughly $12 million was lost partly as a result of Rachleff’s mismanagement.
“(I’m) amazed, upset, disturbed and shocked that it is taking this long for me to get my money back. That’s money that can’t be accounted for,” Fetcher said. “I don’t really care what happened and who’s really involved. I just want my money.”
Fetcher, 59, would not say how much he is due, but did indicate that he had a substantial amount of money in multiple accounts at the credit union. He said within a week after New London’s closure, he received $100,000 for one account that fell within the NCUA’s insurance limit.
While it’s not uncommon for the NCUA to liquidate financially troubled credit unions, it may be unusual that recoupment to members can drag out for five years.
Up to now, delays have largely been caused by various attempts at mediation, settlement of the case and disposing of some administrative claims involving the case, said John Fairbanks, NCUA public affairs specialist. In addition to depositions being delayed due to scheduling conflicts on both sides, people to be deposed who are in Connecticut, Missouri and Texas have slowed the proceedings, he added.
“We expect to depose six to eight people and potentially more if additional information comes to light,” Fairbanks said. “The trial date will depend upon whether discovery can be completed within the presently scheduled time.”
A material-loss review from the NCUA’s Office of Inspector General released in late 2009 found that the agency’s examiners failed to adequately evaluate the risk in New London’s investment program. The OIG also said New London’s collapse was caused by several factors, including the lack of a safekeeping and custodial agreement with a third party independent of the account manager.
Investments accounted for more than 90% of the credit union’s assets. While NCUA examiners noted the high concentration of investments and the lack of controls over investments, including the lack of a safekeeping agreement, they failed to elevate these repeated issues for stronger supervisory actions, the OIG said.
A.G. Edwards & Sons Inc. merged with Wachovia Securities, which in turn merged with Wells Fargo. In January 2009, Wells Fargo was named as a defendant in a suit filed by the NCUA that sought to recover the $11.8 million, which was supposedly deposited into New London’s account from 1998 to 2003. In March 2009, the NCUA also filed an $11.8 million claim to recoup losses against Rachleff’s estate.
In March 2010, the NCUA additionally filed suit against Beller Shepatin and Co., the accounting firm it claimed failed on several counts to detect fraudulent activity in an investment account held by New London. In September 2007, Beller Shepatin merged with Ed Lorah and Associates LLC, which was named as the defendant in the complaint.
Seeking to claim $4 million in losses, five members filed a suit in July 2010 against several entities they said were responsible for the losses including five New London board members, a credit union manager, Wells Fargo Advisors, Beller, Shepatin and Co., Rachleff’s wife, Naomi, who was executor of her husband’s estate, and a law firm that served as general counsel to the credit union. A federal court later dismissed the suit for failing to file within the six-month deadline window after the NCUA board denied their initial administrative claim.
The most recent update came in December 2011 when a Connecticut district court dismissed a suit filed by Wells Fargo Advisors LLC against several former New London board members alleging negligence by Rachleff. The court said a state statute on joint liability in third-party negligence that Wells Fargo presented in its case did not apply because all alleged losses were purely commercial in nature.
Next Page: Staying in Touch
As the lawsuits have flown in and out of court over the past five years, Fetcher said he has kept in touch with an NCUA attorney, who encouraged him to touch base each quarter. Fletcher did not provide the name of the attorney. The last time they talked was in July, he said.
“I’ve been told that (the case) is in discovery. I was told they’re looking at a trial date in January 2014,” Fetcher said. “It gives me some hope.”
Fetcher recalled the day he heard the credit union had collapsed. Returning to his hometown of New London from a vacation in Florida and anxious to power up his laptop to catch up the local news, right there on the front page of The Day was a story on the credit union’s seizure and Rachleff’s suicide.
“Honestly, the first thing that went through my mind was ‘what about my money,’” said Fetcher, who previously worked as a purchasing agent for a wholesale distributorship and retired in 2001.
That night, he started calling New London board members and others in the community to find out more. The next morning, with passbooks in hand, he drove to the credit union’s office, which was housed in the office of a law practice. Representatives from the NCUA’s Asset Management Assistance Center office in Texas were on site packing up files and other items.
“I walked in, introduced myself and asked a woman there if she could do me a favor. I showed her my passbooks and asked if the dollar amount matched the credit union’s ledger amount,” Fetcher recalled. “The woman went in the back, checked and said other than some interest income that had not been posted, the numbers matched.”
Relieved, the kicker came seconds later.
“‘Oh by the way,’ the woman said, ‘you were only insured up to $100,000’,” Fetcher said. “And I said, ‘what?’”
Dumbstruck, he said he made a few phone calls to accountant and lawyer friends to get their opinion on the insurance coverage. Fetcher said they too, were shocked.
“If I had ever been notified I was underinsured, I would’ve moved the money out of my accounts,” Fetcher said.
Doing so would have meant severing long-time ties with New London. Fetcher said he’d been a member of the credit union since June 1, 1983. Both his parents and grandparents were members. His father, who died in 1987, once served on the board.
“The credit union was started in the mid-1930s. Back then, banks did not loan money to Jews so they opened up this credit union,” Fetcher said.
He also shared a joint account with his mother, who died in 2002. The funds in that account exceeded the NCUA’s insurance limit.
Fetcher said he's upset with Wells Fargo for trying to drag the case out for as long as possible until the plaintiffs become exhausted with pursuing their funds. A request for comment from Wells Fargo was not returned.