New charges filed by federal prosecutors Tuesday against former CFO Michael A. LaJoice detailed how he carried out an $18.6 million fraud scheme over 13 years at Clarkston Brandon Community Credit Union in Clarkston, Mich.

A fraud expert who reviewed the court documents said LaJoice got away with it because there was no separation of duties at the credit union and no independent verification of investment accounts LaJoice fictitiously created to conceal his fraud.

Federal prosecutors said LaJoice stole more than $2.5 million by issuing cashier's checks from various credit union accounts without authorization. These checks were deposited in LaJoice's bank accounts at Capital One Bank, Comerica Bank, Scottrade and the $2 billion Genisys Credit Union in Auburn Hills, Mich.

The checks, typically deposited via ATMs, were made payable to the respective institutions and in the names of fake individuals, according to court documents.

According to the documents, LaJoice also stole more than $16.1 million from Clarkston Brandon Community by conducting ACH withdrawals from the credit union to his personal accounts held at PayPal, Capital One Bank, TD Ameritrade and American Express.

He set up ACH withdrawals to debit funds from the credit union's investment general ledger, which he was responsible for balancing. When the electronic transfer debited the credit union's general ledger investment account, the funds were deposited in his personal accounts.

After the funds were deposited, LaJoice cleared the credit union's ledger to delete the corresponding transaction and wire transferred the funds from his personal accounts to other accounts, including his business account at Comerica Bank.

Internal fraud expert Christopher J. Pippett, a partner at the law firm Fox Rothschild LLP in Exton, Pa., said LaJoice managed to get away with this fraud for years because there was no separation of duties.

“Every credit union should have policies regarding separation of duties,” Pippett said. “In this case, LaJoice had authority to write the checks and sign the checks, and he also reviewed and posted the accounts, which is why he was able to get away with it to the extent that he did.”

What's more, LaJoice concealed his fraud by creating fictitious investments in certificates of deposits and bonds at the $2.7 billion Total Bank in Miami.

These fictitious investments were provided to auditors and state examiners to show that the credit union's books were balanced and to avoid detection of the missing funds.

The court documents, however, did not say if auditors and state examiners verified the existence of those CDs.

“Credit unions should have a policy by which they periodically and randomly verify the existence of CDs whether it's through an auditor or whether it's through someone in the credit union if it has that capability,” Pippett explained. “Someone should be calling the banks to confirm they are holding the CDs in the name of the credit union and in what amounts. If you don't do that, this is the type of thing that can happen.”

Federal prosecutors said LaJoice used the stolen funds to build and furnish his new, custom-built home worth more than $1 million.

LaJoice's 5,800-square-foot home was originally reported to be valued at $1.3 million. Michigan police investigators, however, estimated the home to be valued at $4.5 million because it had been built to include a nine-seat movie theater, three sets of washers and dryers, and other top-of-the-line appliances.

In addition to the custom-built home, he used the embezzled funds to buy new vehicles, commercial properties and to support a local dance studio, according to court records.

LaJoice founded LaJoice Properties LLC in April 2015. That company publicly announced plans in October 2015 to build a retail and residential project on commercial land he purchased with stolen credit union money.

The local media reported LaJoice's plan was the biggest development project in the history of Fenton, Mich., located about 60 miles northwest of Detroit. He has also been the owner of Chassé Ballroom and Latin Dance Studio in Fenton since June 2007, according to his LinkedIn page.

In a local newspaper interview in February 2015, LaJoice described himself as an “accountant by day and a dance studio owner by night.”

Although it's controversial, Pippett said he recommends, in most instances, that credit unions have a policy to allow for the periodic review of c-level employees' credit reports and income tax returns.

“People who steal, unless they have a drug or gambling problem, use [stolen funds] to buy other things, and that is where it starts to show up,” he said.

LaJoice explained his lavish lifestyle to his wife by telling her he was getting big returns from stock investments. He told credit union colleagues he got a big inheritance.

Federal prosecutors said LaJoice began stealing from the credit union in January 2003 and continued until January 2016, he walked into the Oakland County Sheriff's Office and admitted he embezzled millions of dollars from the credit union.

He started at the credit union as an account manager and became its CFO in June 2015.

About a week after LaJoice was arrested and charged with embezzlement by state prosecutors, Clarkston Brandon Community was placed into conservatorship by the Michigan Department of Insurance and Financial Services. In March, the credit union was merged into the $3.2 billion Michigan State University Federal Credit Union of East Lansing in March.

An arraignment hearing for LaJoice has not been scheduled yet by the U.S. District Court in Detroit.

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Feds Uncover New Details in CFO Embezzlement

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