An additional 21 businesses and individuals from Illinois and Missouri filed civil lawsuits against the $1 billion Scott Credit Union and its former business relationship manager, alleging consumer fraud that may involve millions of dollars.

Seven new civil lawsuits were filed last month in St. Clair County Circuit Court in Belleville, Ill. These latest legal actions follow a similar civil lawsuit alleging consumer fraud and other charges filed last year by Dave Butz, a former NFL Super Bowl Champion of Swansea, Ill., and Eugene Schill of St. Louis.

However, in addition to denying consumer fraud allegations, lawyers for the Edwardsville, Ill.-based credit union argued in court documents that Butz and Schill may have benefited from the alleged fraud by its indicted business relationship manager.

Moreover, if Butz and Schill suspected any fraud, they were negligent for not stopping or reporting it, according to SCU lawyers.

The credit union argued in court documents that it is not vicariously liable for the alleged fraudulent conduct of Theodore Longust, its former business relationship manager. He was charged in November with nine felony charges of fraud, misapplication of funds and money laundering that involved more than $12 million.

Although Longust pleaded not guilty in December, he may enter a new plea this week, according to court documents.

In addition to consumer fraud, Butz, Schill and 21 other individuals and businesses made a new allegation of negligent hiring against the credit union.

The lawsuits claimed Longust had no or insufficient background or qualifications to work as a business lender at the time of his hiring. The lawsuits also claimed that the former business banker received no or insufficient training with regard to federal and Illinois regulations governing commercial lending.

“The employer Scott Credit Union knew or should have known that Theodore Longust had a particular unfitness for the position so as to create a danger of harm to third persons, and in particular, the plaintiffs,” Belleville, Ill.-based lawyer Grey Chatham Jr. wrote. He is representing the Butz, Schill and the other plaintiffs.

In answering this new allegation, Chicago-based credit union lawyers James R. Branit and Thomas Jacobson argued that Butz and Schill failed to allege any facts that Longust was unqualified or that poor training led him to commit his alleged fraud.

“This allegation is conclusory because plaintiffs provide no facts as to why Longust was not qualified to be hired or what Scott Credit Union should have known of this fact when he was hired,” Branit and Jacobson wrote in court documents.

Nevertheless, Branit and Jacobson argued that based on their information and belief, Butz and Schill frequently communicated with Longust during the time he was embezzling from the credit union.

“Dave Butz and Eugene Schill had a duty to do what a reasonable person would have done under the same or similar circumstance,” they wrote in court documents. “If Dave Butz and Eugene Schill knew or suspected that Theodore Longust embezzled credit union funds … then Dave Butz and Eugene Schill were negligent in not stopping or reporting Theodore Longust's conduct.”

The credit union lawyers also alleged that Butz and Schill and/or companies they are associated with may have benefited from Longust's fraud.

“I'm unaware of the volume of communications that Mr. Butz and Mr. Schill had with Mr. Longust, but any communication was between clients and their banker,” Chatam said. “What the credit union claims is an attempt to mitigate the damages that my clients have incurred based on the credit union's actions.”

Nonetheless, Chatham noted that the credit union's lawyers admitted in court documents that Longust embezzled credit union funds, created fictitious loans, misapplied funds to pay loans with funds from other loans, increased credit limits on loans that did not have the requisite approvals, issued business loans without the required documentation or security and issued letters of credit without the required documentation and security.

Longust worked at SCU from November 2005 to December 2014. He had a lending limit of $50,000 in 2008 and $100,000 from 2009 to 2014, but he was required to obtain approval from the business loan committee for any loan exceeding those amounts. The credit union's board was required to approve all credit extensions of more than $1 million.

A criminal indictment alleged Longust submitted a false report that misstated loan balances, omitted loan amounts and underreported loans of more than $12 million. Longust submitted the report to SCU President/CEO Frank A. Padak and Chief Lending Officer Craig Burkhard in 2014, according to the indictment.

He allegedly began his fraudulent scheme in November 2008 by creating an unauthorized loan in the name of the South County Baptist Church. Court documents did not say whether Longust was a member of that church.

Though the amount of the church loan was not specified in court documents, Longust allegedly used more than $76,000 from that loan to pay off his personal credit card bills.

Moreover, the indictment alleged that Longust misapplied SCU funds by completing loan advances from three business loan accounts.

For example, in one instance he made loan advances from a loan account in two transactions totaling $301,000. Those transactions brought the outstanding balance of the loan to $1.4 million.

On the second business loan account, he made loan advances totaling $212,000, which caused the outstanding balance on that account to grow to $1.6 million. On the third business account, Longust made a loan advance of more than $129,000, which caused the outstanding balance on that loan account to reach $1.5 million.

According to the civil lawsuits, SCU and Longust are alleged to have opened unsecured lines of credit without authorization and signature of the plaintiffs, removed money from their accounts without authorization, denied access to funds or accounts, attempted to collects fund from plaintiffs from past due accounts that were unauthorized, withheld misappropriated funds and deceived plaintiffs.

The companies and individuals named as plaintiffs in the new civil lawsuits are Gary Pierce, Trio Properties & Management LLC, Mary Hubbard, Integrated Construction Resources LLC, Amani Investments LLC, Deryl Brown, Mid City Development LLC, Waveseer Holdings LLC, Gateway Capitol Group LLC, TM Partnership LLC, Schill Investment Fund LLC, P2 Commercial LLC, GFO Properties LLC, Gene O'Donnell, Becky Anderson, Physicians Choice Wellness LLC, Tim O'Donnell, Complete Supplements LLC, Bill Haskins, P2 Properties LLC, and Joe Plescia.

These plaintiffs, as well as Butz and Schill, claimed their professional reputations have been damaged and are unable to borrow or enter into new business ventures. They are also claimed they are now on the hook for millions of dollars in fraudulent lines of credit that were handed over by the credit union to debt collectors.

When reached by CU Times Tuesday, SCU said it does not comment on legal matters.

Instant Insights /

Scott Credit Union Faces More Fraud Suits

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