ROCKY RIVER, Ohio-American Share Insurance has filed a multi-million dollar civil complaint against United Telephone Credit Union’s former board of directors on several counts, including fraud. In total, the plaintiffs are seeking relief of at least $2,253,008.79 in damages in addition to punitive damages, attorneys’ fees and expenses. The Ohio Department of Commerce Division of Financial Institutions appointed ASI as conservator of United Telephone Credit Union Feb. 24, 2003. The institution has continued to operate without interruption to its members in Rocky River and its branch offices in Mansfield, Bedford Heights, as well as its three Cleveland locations. All accounts remain insured by ASI up to $250,000. ASI President and CEO Dennis Adams said the credit union would likely remain in conservatorship until the lawsuit was concluded, which is expected to last longer than the typical conservatorship. The Ohio Department of Commerce announced Dec. 16 that ASI had filed the civil suit in Cuyahoga County Common Pleas Court against the credit unions’ former board of directors, including Manager, Secretary, and Director Martin J. Hughes, Jr., the octogenarian’s son and guardian Carl F. Hughes, Martin’s wife Natalie Hughes (a former director), and Martin and Natalie’s nephew and former Director and President Daniel P. Hughes. Carl was named Martin’s guardian after an allegation of mental incompetence was filed Dec. 3, 2003, according to Orla Collier of Benesch Friedlander Coplan & Aranoff, LLP, the attorney handling the case for ASI. ASI filed the suit on behalf of the credit union’s 5,800 members to recover the true value of assets that were allegedly misappropriated by the defendants. The suit charges the defendants with fraud, misappropriation of shares, wrongful transfer of stock to an account of defendant Natalie Hughes for substantially less than the fair market value, unjust enrichment, and breach of fiduciary duty. Specifically, the Division of Financial Institutions discovered that the credit union’s 1978 investment in shares of Fahey Banking Company in Marion were sold to Hughes’ wife for $220,475-nearly $2 million less than its recently appraised value. Fahey Bank is operated by Natalie’s family. It also alleges that during 2000, 2001 and 2002 the credit union made nearly $88,000 in cash disbursements for Martin or Natalie Hughes, such as personal long distance calls, car insurance, gas, tires, auto repairs and expenses, personal liability insurance on the Hughes’ residence, traffic fines, a washer and dryer delivered to a family member, undocumented payments to an individual, attorneys’ fees for apparent personal representation, and other items. Additionally, Hughes allegedly obligated the credit union to pay a $208,000 settlement to Union Eye Care Center related to a dispute between him and the Center. Aside from this instance and the Union Eye Care settlement, Martin Hughes has been in hot water in his past. Hughes was included in one of a slew of presidential pardons by an outgoing President Bill Clinton. He had been convicted of cooking the books at his former employer Communications Workers of America to allow for greater political contributions than permitted by law. The credit union was originally placed into conservatorship for “business practices [that] had dissipated and continued to dissipate the assets of the credit union, resulting in harm to the credit union, its members, depositors and creditors,” a statement from Ohio’s Division of Financial Institutions read. Previously, in July 2002, the Division of Financial Institutions, ASI, and United Telephone Credit Union entered into a Supervisory Agreement, which directed the credit union to implement corrective actions for numerous instances of accounting and Internal Revenue Service noncompliance, self-dealing, inadequate investment policies and breach of fiduciary duties by the Board of Directors and management. The directors and officers failed to comply with the agreement. Ohio Department of Commerce’s Division of Financial Institutions spokesman Dennis Ginty told Credit Union Times that he could not comment on whether criminal charges will be filed in the case. Neither Collier nor ASI would comment on whether criminal charges would help or hurt their case. -firstname.lastname@example.org
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