Credit Union Times reported approximately 35 fraud cases this year and about 75% of them were committed by credit union employees, namely CEOs, managers, loan officers and tellers.
In most of these insider fraud schemes, the money embezzled amounted to tens of thousands or hundreds of thousands of dollars. In a few of the fraud cases, however, millions of dollars were stolen, and in some cases, the theft occurred over several years or decades.
In our new list of the Top 7 insider fraud schemes of 2013, more than $40 million was bilked by five CEOs/managers and a loan officer. One fraud case, however, is still under investigation. And while a civil lawsuit has been filed alleging fraud loan participation against three former credit union employees, no criminal charges have been filed against them.
Six out of the seven credit unions – well under $50 million in assets each – were shuttered by the NCUA. Three CEOs/managers and the loan officer are in federal prison. One CEO is in federal custody awaiting possible indictment and trial and another credit union manager took his own life.
Here are their stories:
Next Page: Hiding Out in Cleveland
Hiding Out in Cleveland
On the evening of July 16, the FBI and local police surrounded the million-dollar Cleveland suburban home of Alex R. Spirikaitis to arrest the CEO on fraud charges that led to the collapse of the $23.6 million Taupa Lithuanian Credit Union.
For safety reasons, authorities waited until daybreak to approach the home but found that Spirikaitis somehow managed to elude them.
For the next three months, Spirikaitis was on the run. The FBI issued a public warning, apparently for good reason, that the former CEO could be armed, dangerous and suicidal.
After Spirikaitis was nabbed by FBI agents in October, it was revealed that NCUA auditors found 10,000 rounds of ammunition and multiple semi-automatic weapons in a storage room at the credit union. It is unknown why the weapons and ammunition were stored in the credit union and Spirikaitis does not have an Ohio concealed carry permit, according to court records. The weapons and ammunition are being held by the Cleveland Police Department.
According to court documents, about $10 million to $16 million may have been embezzled from the credit union, which would make it one of the largest fraud cases in credit union history.
An FBI investigation found that Spirikaitis received a December 2011 bank statement that showed a total of $559,468 in Taupa's accounts at the $4.5 billion Corporate One Federal Credit Union in Columbus, Ohio.
However, Spirikaitis reported on the credit union's December 2011 NCUA Call Report $16,165,288 in assets at the corporate credit union. Court documents also show Spirikaitis allegedly altered and modified Corporate One FCU bank account statements for examiners.
Now in federal custody, it appears that Spirikaitis is cooperating with prosecutors and is in pre-indictment negotiations with them. The FBI investigation also has revealed others were involved in the massive fraud case.
Former teller Michael Ruksenas pleaded guilty earlier this month in Cleveland’s U.S. District Court to conspiring to embezzle more than $481,000.
Federal prosecutors said they expect to charge six others in the coming weeks or months.
Next Page: $10 Million for 'Sinful Things'
$10 million for 'Sinful Things'
“By the time you read this I will have taken my life,” John C. DuPree Jr., volunteer manager for the $2.4 million Shiloh of Alexandria Federal Credit Union, wrote in a suicide note. “I’ve been stealing money from Shiloh Credit Union for several years now. I have acted alone in this thievery. I betrayed the trust that everyone placed in me.”
At age 48, DuPree committed suicide on April 4, just one day before the NCUA was set to inspect the suburban Virginia credit union’s financial records. NCUA’s investigation found on DuPree’s office computer his suicide note in which he also acknowledged most of the funds he stole – about $10 million –were used for “sinful things.”
About a week after Dupree’s death, the NCUA liquidated the volunteer-run credit union.
In November, the NCUA filed a lawsuit against DuPree’s estate and his former fiancée, Sharon Gonder of Maryland. DuPree and Gonder allegedly funneled much of the stolen money into their jointly owned company, JD Payne Properties, and used it to support a lavish lifestyle, including buying numerous cars and real estate, the lawsuit said.
Since Shiloh of Alexandria had a low-income designation, it was allowed to accept investment deposits, such as CDs, from non-member institutions, which DuPree and Gonder used to conduct an elaborate scheme, according to court documents.
DuPree falsified general ledger balances by replacing converted credit union funds with proceeds from CDs that were purchased by non-member (and often non-local market) participants, which he had not posted to Shiloh’s financial records, the complaint said.
He altered records to hide his misappropriation and conversion of member funds, the lawsuit said, and he did not accurately post members’ transactions to their accounts.
Even though Shiloh Credit Union did not have a cash operation and banked with an independent financial institution, DuPree withdrew substantial amounts of cash from Shiloh’s bank account to benefit himself and Gonder, the complaint said.
Next Page: A Piece of the Action
Breaking Bad for a Piece of the Action
Auto loans are a main source of revenue for credit unions, and one cooperative employee who broke bad decided he wanted a piece of the action.
Michael Ross Franco, a former loan officer for the $274 million My Community Federal Credit Union in Midland, Texas, was sentenced to 18 months in federal prison in November for his role in approving nearly 500 fraudulent auto loans totaling $7 million and accepting more than $29,000 in kickbacks, according to the U.S. Attorney’s office there.
Franco worked as a loan officer with My Community FCU from May 2006 until October 2008.
During that time, Franco admitted approving 487 fraudulent auto loans totaling more than $7 million. The fraudulent auto applications overstated or misstated the customer’s income, the customer’s debt-to-income ratio and/or the customer’s credit score, court records show.
Franco also admitted to accepting more than $29,000 in kickbacks from co-conspirators for his role in the scheme.
The co-conspirators, Raymond Holguin Jr., operator of Motor City, an auto dealership in Odessa, Texas, and Gustavo Pizarro, general sales manager at Motor City, have each pleaded guilty to one count of conspiracy to commit bank fraud, according to the U.S. Attorney’s office. They are scheduled to be sentence on Jan. 9.
While Franco, 41, will spend a short time in the federal pen, it could him a long time to pay the court-ordered restitution of $4.1 million to the credit union.
Next Page: Last of the Feminist-Chartered CUs
The Last Feminist-Chartered CU
The Women’s Southwest Federal Credit Union in Dallas was formed when local activists, attending a lecture by Gloria Steinem in 1973, asked the Ms. Magazine editor how they could assist in the women’s movement.
“Start a credit union,” she said.
Women’s Southwest FCU was one of several feminist credit unions that were chartered in the early 1970s to provide women with credit in an era when women could not typically acquire a loan in their own names.
For years, the credit union was flourishing, or at least it appeared that way, until the fall of 2012 when NCUA seized the last of the feminist-chartered credit unions.
Theresa “Teri” Portillo, former manager of the shuttered $2 million Women's Southwest FCU, pled guilty to embezzlement charges in U.S. District Court in Dallas and was sentenced to 6 and a half years in federal prison in January.
Portillo admitted to stealing $3.4 million from the Dallas-based credit union over a period of 11 years, from 2001 to 2012.
According to court documents, she sold 18 credit union-owned certificates to other institutions and pocketed the proceeds, using the cash to buy nine properties in the Dallas area, a Mexican time share in Cabo San Lucas, jewelry, vehicles, vacations, and to pay bills for herself, family members and friends.
Portillo was ordered by pay $3.4 million in restitution and agreed to forfeit the properties and jewelry she illegally obtained.
Next Page: Fraud, Drugs and $50,000 a Month
Federal prosecutors said Ignacio Morales used his position as the CEO of the now-shuttered $7 million Borinquen Federal Credit Union not just to embezzle more the $2.3 million through a variety of schemes for six years, but he also withdrew half a million dollars from the Philadelphia credit union in an attempt to purchase 15 kilograms of cocaine.
He admitted that he intended to use his share of the profits from the drugs to cover up his crimes and throw regulators off his trail.
In January, Morales was sentenced to seven years in federal prison after pleading guilty to fraud, embezzlement, money laundering, filing false income tax returns and possession of cocaine with intent to distribute.
He was ordered to pay $2.3 million in restitution to the NCUA and pay restitution to the IRS of $7.3 million.
Court records showed the former CEO also was a tax cheat who cashed hundreds of fraudulent U.S. tax refund checks through BFCU, keeping 20% of each check. Morales was earning $50,000 a month in kickbacks from just one person who cashed nearly a dozen fake checks per week, prosecutors said.
Morales also took $600,000 from the credit union to buy $1.2 million in real estate for personal use and stole $700,000 from a member who deposited $1.7 million at the credit union, court records show.
According to court documents, Morales generated fake statements and misapplied credit union funds to pay dividends on the stolen funds to hide his crimes.
Next Page: A Simple Life, A Complex Fraud
A Simple Life, A Complex Fraud
Sharon Broadway’s lawyer said her client led a simple life. But the fraud that the former manager perpetrated on the former United Catholic Credit Union in Temperance, Mich., for 27 years was anything but simple.
As manager, secretary, board member and sole employee of the $303,261 cooperative, Broadway, who embezzled $2.1 million since 1985, was able to conceal her crimes for years using a complex money laundering scheme involving forged checks and multiple aliases, according to Michigan authorities.
Broadway’s fraud was uncovered after a routine examination by the Michigan Office of Financial and Insurance Regulation showed that a substantial amount of certificates of deposit went un-recorded in the credit union's financial records, authorities said.
The 62-year-old Toledo, Ohio, woman was sentenced in January to 10 to 240 months for embezzlement and 45 months to 240 months for racketeering. She also was ordered her to pay $2.5 million in restitution to NCUA.
Following her sentencing hearing, her lawyer, Lorin Zaner, told a local newspaper that Broadway spent some of the money on others.
“There really is nothing to show for it,” Zaner told ToledoBlade.com. “She didn’t live an extravagant life.”
Zaner didn’t explain, however, what happened to the rest of all of that money over all of those years.
Next Page: Loan Participation Plot
Loan Participation Plot at Lynrocten FCU
The NCUA liquidated the $13.8 million Lynrocten FCU of Lynchburg, Va., in May, about a week after local print and broadcast media reported that local police were investigating allegations from members that money was missing from accounts and loans were made from their accounts without their knowledge.
“Detectives with the Criminal Investigations Division of the Lynchburg Police Department are working with the Lynrocten Credit Union to identify where criminal activity has occurred,” the Lynchburg Police Department posted on its Facebook site.
The NCUA said in a release it decided to liquidate the 1,068-member credit union and discontinue operations after determining it was insolvent and had no prospect for restoring viable operations.
Lynrocten was a three-person shop headed by Manager Linda S. Newcomb.
In November, Newcomb and former credit union employees Teresa Humphries and Becky Nichols were named as defendants in a civil lawsuit filed by the $20 million Northern Piedmont Federal Credit Union of Culpeper, Va.
The lawsuit accuses the trio of a $1.7 million loan participation fraud,
Northern Piedmont wired more than $3 million to Lynrocten from 2009 to 2011 and entered into agreements based on fraudulent misrepresentations, according to the civil complaint.
“Newcomb and Humphries concocted a scheme to originate loans, allegedly including the loans in which Northern Piedmont purchased participations, in members’ names without the members’ authorization,” the complaint states.
Newcomb negotiated each agreement on behalf of Lynrocten, provided a list of borrowers’ names and loan account information, and “represented to Northern Piedmont that actual loans secured by shares or vehicles would be the basis of these agreements,” the court documents said.
In addition to the missing $1.7 million, Northern Piedmont seeks interest and punitive damages, according to court documents.
Humphries allegedly confessed in April and May that she and Newcomb had taken loans out in members’ names and deposited the funds in their family members’ accounts for a decade.
However, Newcomb denied being involved and Humphries later retracted the statement, according to court records.
Northern Piedmont learned from NCUA investigators that only one loan allegedly supporting the loan participation agreements was legitimate, according to court documents, and that loan was made to Newcomb’s daughter, who has since declared bankruptcy.