SPRINGFIELD, Mass. - Concrete progress is finally being made inthe investigation of the downfall of D. Edward Wells Federal CreditUnion after more than three years. Carol Aranjo, former CEO of thecommunity development credit union, as well as her husband and oneson were arrested Friday, July 7, and charged with embezzling moneyfrom the failed credit union. NCUA liquidated D. Edward Wells inMay 2003 for insolvency after a brief conservatorship andtransferred member share accounts to Western MassachusettsTelephone Workers Federal Credit Union. Aranjo, chairman of theNational Federation of Community Development Credit Unions from1993 to 1999, was ousted from that position in 1999 in eventsunrelated to the current situation and later failed to disclose tothe Federation a full and accurate accounting of its investments inthe credit union. The Federation filed a complaint with NCUAinitiating the investigation that led to the liquidation of thecredit union.

Federation Executive Director Cliff Rosenthal remarked that notrade association wants to go up against one of its own members,but he said the organization felt it had to not only try to get itsinvestments and deposits back from the credit union but also upholdthe credit union principle of financial transparency. In the end,the Federation was out $250,000 on its secondary capitalinvestment, but its investors did not lose a dime though theFederation's reserves took a hit. "No investor that has made theirinvestment through the Federation has ever lost a cent and we'vebuilt up reserves to ensure that's never going to happen,"Rosenthal said.

Overall though, this incident with D. Edward Wells is "certainlynot a good thing," he commented. However, Rosenthal emphasized, "Wepoliced our own movement." He pointed out that it is not infrequentthat NCUA puts out a release that credit union staff and officialshave been barred from working in financial institutions due toembezzlement and other scams.

Referring to credit union fraud in general Rosenthal added,"We've recovered from this in the past. We'll recover from itagain." The Charges

The 65-year-old Aranjo, her husband Alphonso Smith, and theirson Douglas L. Smith pleaded innocent to charges of conspiracy toembezzle, embezzlement and filing false tax returns among otherthings and were released on $100,000 unsecured bond each. Ifconvicted, each defendant faces up to 30 years in prison followedby five years probation, and a $250,000 fine.

Many of the charges in the 86-count indictment cite thedefendants "together with others known and unknown to the GrandJury," possibly indicating more to come. A spokesperson in the U.S.Attorney's Office for the District of Massachusetts offered nocomment on the indictments.

"A CU failure is always a regrettable situation," NCUA said in astatement. "The loss of a credit union is a loss for its membersand the community it serves. While member accounts are federallyinsured through the NCUSIF, the membership and the local communitylose a valuable source of low cost financial services when a creditunion is forced to close.

"A federal criminal investigation has been ongoing for sometime. NCUA is gratified that the U. S. Department of Justice hastaken steps to indict and bring to trial those individuals,including the former manager Carol Aranjo, alleged to beresponsible for the failure of D. Edward Wells FCU. We areconfident that the criminal justice system will ultimately resultin a just verdict."

NCUA filed a civil case in February 2006 against Aranjo andothers the agency alleges were involved. The federalregulator-represented by attorneys from Boston law firm Donnelly,Conroy & Gelhaar, LLP-has charged Aranjo and former SupervisoryCommittee Chairman Michael Akers with breach of fiduciary duty,fraud, negligence, and conversion. Akers was also later identifiedas an IRS special agent in the criminal investigation division inHartford.

NCUA is seeking restitution for unjust enrichment from Aranjo,her husband and three sons, Akers, Friends of the Credit Union(FOCUS) and its clerk Mary Spruell, and D.A.T. Construction, acompany operated by one of Aranjo's sons. D.A.T., FOCUS, Spruelland Aranjo's sons have also been charged in the civil suit withaiding and abetting. The agency is seeking damages to be determinedat trial, including interest.

Aranjo repeatedly denied NCUA access to the credit union'sfinancial records, according to the agency, allegedly physicallyremoving them from the hands of an examiner and had gone so far asto apply for a temporary restraining order against NCUA that wasdenied.

Upon conservatorship, NCUA found that Aranjo carried a negativebalance on her own account of $343,866.58; allowed Douglas L. Smitha negative share balance of $59,174.27; allowed another son, ParisNadir, a negative balance of $4,513.44; permitted her husband,Alphonso Smith, to carry a negative balance of $87,113.24; allowedAlphonso L. Smith, another son, to draw his balance to negative$15,019.62; and permitted D.A.T. Construction, a business ofDouglas', to overdraw its account by $122,256.22.

Criminal indictments have only come in so far for Aranjo, herhusband, and Douglas. The entire case goes well beyond the tinycredit union and is part of a federal corruption probe intoSpringfield city contractor Frank Ware Jr. and others (See CUTimes, Nov. 3, 2005 issue, page 10).

"Until the government proves their case beyond a reasonabledoubt, an indictment is nothing more than an accusation. However,this case does arise from a political context in which the NationalCredit Union Association, in the person of Lane Baumgardner, theRegional One Director, set out to implement a policy of eliminatingsmall ethnic low income credit unions. This policy was alsoemployed in several southern states such as Alabama, Georgia,Mississippi, and Florida. Mr. Baumgardner merged or eliminated asmany of those credit unions as he could in his region," said GeorgeNassar, attorney for Aranjo. "Nationally, some 4,000 such creditunions were closed. When Ms. Aranjo opposed his directives,Baumgardner, in front of several witnesses, threatened to bring thefull weight of the government against my client and it appears thathe has done so. "Ms. Aranjo is a very prominent and distinguishedmember of the African American Community and will strenuouslydefend herself," Nassar said. The Nitty-Gritty The 86 criminalcounts against Aranjo and her family include hundreds of thousandsof dollars inappropriately transferred between accounts to covertheir own overdrawn accounts, improperly documented loans, and evena timeshare in Cabo del Sol, Mexico purchased on the Wellscorporate card. The indictment charges Aranjo with making falseentries in the credit union's records and obstructing theexaminations of the NCUA, which regulates federal credit unions. Italso alleges that she engaged in a bank fraud scheme involving a $2million line of credit issued to an organization called Friends ofthe Credit Union and used advances of the line of credit torefinance other loans, cover up negative account balances andgenerate false interest income.

Her husband, Alphonso Smith, was charged with defrauding threecommercial lending institutions by submitting fraudulent loanapplications and false verifications of employment in order toobtain mortgage loans. He and their son, Douglas, were also chargedwith submitting a false bid for the construction of seven houses.In addition, Douglas was charged with making a false claim to theDepartment of Housing and Urban Development's HOME Program for$10,000. The three were arraigned before U.S. Magistrate JudgeKenneth P. Neiman. The IRS, Criminal Investigation for New York andNew England, the FBI and HUD's Office of Inspector General,investigated the case. Assistant U.S. Attorney Karen Goodwin isprosecuting the case. According to local news source TheRepublican, Neiman has set a status conference date of Aug. 23.Point Counterpoint

The Property and Casualty Initiative is suing NCUA for notreturning $630,865.25 after the liquidation of D. Edward Wells,according to court documents in that case. PCI, a group of propertyand casualty insurers that invest in low-income communities inMassachusetts, had made an investment with FOCUS, which placed thefunds in the credit union. The two sides agreed to work on asettlement in the case, which is expected shortly, according toNCUA. [email protected]