Debt Collector’s Fraud Hits California, Nevada & Washington CUs
The owner of a debt collection agency was indicted earlier this month for allegedly running a multimillion-dollar fraud scheme that victimized credit unions in California, Nevada and Washington.
Federal agents arrested Charles V. Stanley Jr. in Los Angeles on June 14. He was the owner of a Creditor Specialty Service Inc., an Acton, Calif.-based debt collection company. Credit unions and other businesses contracted with CSS to collect debts from members and customers.
Beginning in January 2012 and continuing through August 2016, CSS employees, at the direction of Stanley, collected money from debtors, but CSS under-reported the amounts collected, according to the indictment. The 63-year-old Stanley allegedly diverted some of the under-reported funds to pay his personal expenses and other clients.
He also allegedly continued to collect money from debtors of one credit union even after it terminated its contract with CSS. Moreover, CSS filed lawsuits or settled with debtors without required client authorization.
Because of Stanley’s fraudulent schemes, CSS’ clients and debtors lost millions of dollars, according to federal prosecutors.
The names of the three California credit unions do not appear in the indictment. They are identified as Credit Union 1 in Folsom, Credit Union 2 in Bakersfield and Credit Union 3 in Sacramento.
The CU Times identified two of the credit unions after reviewing bankruptcy records.
CSS filed for Chapter 7 bankruptcy last year. According to bankruptcy filings, Credit Union 1 is the $2.5 billion SAFE CU and Credit Union 2 is the $595 million Safe 1 CU. Although the Sacramento credit union could not be identified, it may have been a mistake by prosecutors. Bankruptcy court documents list SAFE CU as a creditor but in care of its law firm, which is based in Sacramento.
Federal prosecutors did not return a CU Times phone call and email seeking clarification.
According to federal court records, 25 individuals and organizations, including seven credit unions have made a total of $19,656,375 in monetary claims against CSS. Of that total, the credit unions have made $19,115,688 in monetary claims.
The credit unions and their monetary claim filed against CSS are the $2.3 billion Provident CU in San Rafael, Calif., ($8,036,331); the $730 million Silver State Schools CU in Las Vegas, ($66,715); the $3.1 billion Chevron FCU in Woodland Hills, Calif., ($5,983,735); the Safe 1 CU, ($786,322); the $354 million Sea West Coast Guard FCU in Oakland, Calif., ($3,257,374); the $67 million American Lake Credit Union in Tacoma, Wash., ($13,250); and SAFE CU, ($971,961).
The $3.4 billion Redwood Credit Union in Santa Rosa, Calif. also has filed lawsuits against CSS in bankruptcy court, but it has not made any monetary claims against the debt collector, according to publicly available federal court documents.
“We were the ones that initiated the litigation the first place with CSS because we identified the issues,” Dave Roughton, president/CEO of SAFE CU, said. “We did that in order to protect our members and the integrity of the business we try to conduct here at SAFE.”
The credit union discovered in 2013 that CSS had breached its contract and fiduciary duties when it cut off SAFE’s access to account information and stopped remitting collections, according to court documents. In April 2014, a SAFE lawsuit against the debt collector alleged “extremely serious misconduct, including numerous collection actions and judgements pursued by CSS on SAFE’s accounts without the credit union’s knowledge or consent. The credit union also alleged CSS forged signatures of SAFE employees and used other false documents.
“We actually did engage with law enforcement once the litigation got to a certain place in the proceedings and we were able to document the impact of the actions that we alleged CSS engaged in,” Roughton explained. “Once our actions were a matter of public record, we notified the California Credit Union League of the circumstances that we were involved in so that they could notify other credit unions in the state to understand what the circumstances were and how they may be affected, if they were doing any business with this same company.”
Roughton emphasized the CSS case did not affect SAFE’s members nor did it adversely affect the safety and soundness of the credit union in any way.
Stanley has not been arraigned yet on the 15-count indictment of bank fraud, conspiracy to commit bank fraud, mail fraud and wire fraud.
Stanley and his lawyer did not respond to a CU Times phone call and email seeking their comment.