Failed Credit Union CEO Arrested, Charged
A former Alabama credit union president/CEO was charged with bank fraud, money laundering, wire fraud and conspiracy Monday. A 112-count indictment detailed how Jonathan Wade Dunning, 51, allegedly controlled the cooperative and stole $14 million in property, assets and federal grants that were supposed to fund health care services for poor children, adults and the homeless.
Dunning, shown at left, pleaded not guilty to all felony charges in U.S. District Court in Alabama after federal agents arrested him in a resort hotel in Hoover, Ala., according to court records.
From October 2008 to October 2011, Dunning was president/CEO of Birmingham Financial Federal Credit Union. On Oct. 27, 2011, the NCUA placed the $1.3 million, 429-member cooperative into conservatorship. About six weeks later, the federal agency liquidated the credit union. The $125 million ēCO Credit Union in Birmingham immediately assumed BFFCU’s members, assets, loans and debt.
NCUA Public Affairs Specialist John Fairbanks said Wednesday he could not comment on the case.
However, he referred to the NCUA’s Office of Inspector General semiannual report to Congress from October 1, 2011 to March 31, 2012 that explained why the federal agency liquidated BFFCU.
The OIC reported the credit union became “insolvent due to management operating the credit union in an unsafe and unsound manner including a serious conflict of interest with the credit union’s sponsor, a continuous lack of action by management to address issues, persistent non-compliance with established timelines for submitting reports, and problems with the credit union’s books and records.”
The OIG estimates the loss to the NSUSIF totaled $41,319.
Federal prosecutors charged Dunning leveraged total control over the credit union to enrich himself, businesses that he owned and others, according the federal indictment.
“Dunning would and did cause BFFCU to operate under the false pretense of being a legitimate and independent financial institution free of self-dealing when, in truth and in fact, Defendant Dunning was manipulating the accounts and practices of BFFCU for the gain of himself, the Synergy Entities and others,” according to the 64-page indictment.
The indictment described how he assumed various positions at BFFCU, including president, board chair and/or loan officer. Supervisory, management and oversight positions at BFFCU were occupied by individuals who complied with Dunning’s direction, the indictment said.
Dunning also leveraged this authoritarian control to gain favorable treatment for himself and his businesses for loans, interest payments, transfers among accounts, and other expenditures.
In one instance, he received an $85,000 loan to buy a brand new Jaguar XJL without following the credit union’s loan applications procedures and policies, court documents show.
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Dunning also allegedly abused his positions at the credit union by depositing funds from Birmingham Health Care that provided health care services to the poor without regard to that organization’s ability to pay its own bills, federal prosecutors stated in the indictment.
Before taking over the credit union, Dunning was the CEO of BHC and then later resigned from that post, but he remained as a paid consultant to the non-profit organization. He also was the CEO of the non-profit Central Alabama Comprehensive Health Inc., a Tuskegee-based non-profit organization that provided primary and preventive health care to the poor. He also resigned from CACH, but he was retained as a paid consultant.
Both organizations received millions of dollars in grants from the U.S. Department of Health and Human Services.
After resigning as CEO of BHC and CACH, Dunning opened nine businesses. He hired key employees from the non-profit groups and then contracted with BHC and CACH for those same employees to provide their services.
Dunning also got BHC and CACH to sign contracts with his businesses to provide goods and services. By doing this, Dunning was able to control a large portion of BHC’s and CACH’s income, according to the indictment.
Over six years, Dunning allegedly steered $14 million from BHC and CACH coffers to accounts at BFFCU and other banks.
In October 2008, BHC became a sponsor of the credit union. Dunning caused BHC to secure the sponsorship of an existing credit union charter from HABD Federal Credit Union.
According to the indictment, Dunning got BHC to agree to promissory notes, loan agreements and other contractual arrangements under which the not-profit organization agreed to pay him at least $1.3 million purportedly for money he had loaned to BHC.
Dunning caused BHC’s daily receipts, totaling more than $950,000, to be deposited into a BFFCU account in the name of BHC rather than into its operating account held at another financial institution.
Dunning also controlled BHC’s deposits at the credit union to ensure that he and his businesses received priority payments.
Federal prosecutors also alleged Dunning “controlled the mechanics of BHC’s income stream in order to increase BHC’s apparent financial dependence on Dunning as a lender.”
Moreover, when BHC was unable to pay other vendors and creditors after making “priority payments” to Dunning, he would loan money to BHC.
Dunning also spent BFFCU funds to pay debts and bills of BHC ostensibly as part of a revolving line of credit agreement between BHC and a company that Dunning operated. Those expenditures, however, were never recorded in BHC’s books or records, according to federal prosecutors. Instead, Dunning used BHC’s funds allegedly to pay himself, as well as debts and bills racked up by his companies.
Dunning also sold properties owned by BHC at well below market value to a real estate company he owned, turning BHC into his tenant, according to the indictment. In addition, using BHC funds he also sold properties to his real estate company.
Dunning’s lawyers, Michael W. Whisonant Jr. and Richard S. Jaffe in Birmingham, did not return calls seeking comment before Wednesday’s deadline.