SPRINGFIELD, Mass. - Concrete progress is finally being made in the investigation of the downfall of D. Edward Wells Federal Credit Union after more than three years. Carol Aranjo, former CEO of the community development credit union, as well as her husband and one son were arrested Friday, July 7, and charged with embezzling money from the failed credit union. NCUA liquidated D. Edward Wells in May 2003 for insolvency after a brief conservatorship and transferred member share accounts to Western Massachusetts Telephone Workers Federal Credit Union. Aranjo, chairman of the National Federation of Community Development Credit Unions from 1993 to 1999, was ousted from that position in 1999 in events unrelated to the current situation and later failed to disclose to the Federation a full and accurate accounting of its investments in the credit union. The Federation filed a complaint with NCUA initiating the investigation that led to the liquidation of the credit union.

Federation Executive Director Cliff Rosenthal remarked that no trade 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 its investments and deposits back from the credit union but also uphold the credit union principle of financial transparency. In the end, the Federation was out $250,000 on its secondary capital investment, but its investors did not lose a dime though the Federation's reserves took a hit. "No investor that has made their investment through the Federation has ever lost a cent and we've built up reserves to ensure that's never going to happen," Rosenthal said.

Overall though, this incident with D. Edward Wells is "certainly not a good thing," he commented. However, Rosenthal emphasized, "We policed our own movement." He pointed out that it is not infrequent that NCUA puts out a release that credit union staff and officials have been barred from working in financial institutions due to embezzlement and other scams.

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

The 65-year-old Aranjo, her husband Alphonso Smith, and their son Douglas L. Smith pleaded innocent to charges of conspiracy to embezzle, embezzlement and filing false tax returns among other things and were released on $100,000 unsecured bond each. If convicted, each defendant faces up to 30 years in prison followed by five years probation, and a $250,000 fine.

Many of the charges in the 86-count indictment cite the defendants "together with others known and unknown to the Grand Jury," possibly indicating more to come. A spokesperson in the U.S. Attorney's Office for the District of Massachusetts offered no comment on the indictments.

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

"A federal criminal investigation has been ongoing for some time. NCUA is gratified that the U. S. Department of Justice has taken steps to indict and bring to trial those individuals, including the former manager Carol Aranjo, alleged to be responsible for the failure of D. Edward Wells FCU. We are confident that the criminal justice system will ultimately result in a just verdict."

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

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, a company operated by one of Aranjo's sons. D.A.T., FOCUS, Spruell and Aranjo's sons have also been charged in the civil suit with aiding and abetting. The agency is seeking damages to be determined at trial, including interest.

Aranjo repeatedly denied NCUA access to the credit union's financial records, according to the agency, allegedly physically removing them from the hands of an examiner and had gone so far as to apply for a temporary restraining order against NCUA that was denied.

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

Criminal indictments have only come in so far for Aranjo, her husband, and Douglas. The entire case goes well beyond the tiny credit union and is part of a federal corruption probe into Springfield city contractor Frank Ware Jr. and others (See CU Times, Nov. 3, 2005 issue, page 10).

"Until the government proves their case beyond a reasonable doubt, an indictment is nothing more than an accusation. However, this case does arise from a political context in which the National Credit Union Association, in the person of Lane Baumgardner, the Regional One Director, set out to implement a policy of eliminating small ethnic low income credit unions. This policy was also employed in several southern states such as Alabama, Georgia, Mississippi, and Florida. Mr. Baumgardner merged or eliminated as many of those credit unions as he could in his region," said George Nassar, attorney for Aranjo. "Nationally, some 4,000 such credit unions were closed. When Ms. Aranjo opposed his directives, Baumgardner, in front of several witnesses, threatened to bring the full weight of the government against my client and it appears that he has done so. "Ms. Aranjo is a very prominent and distinguished member of the African American Community and will strenuously defend herself," Nassar said. The Nitty-Gritty The 86 criminal counts against Aranjo and her family include hundreds of thousands of dollars inappropriately transferred between accounts to cover their own overdrawn accounts, improperly documented loans, and even a timeshare in Cabo del Sol, Mexico purchased on the Wells corporate card. The indictment charges Aranjo with making false entries in the credit union's records and obstructing the examinations of the NCUA, which regulates federal credit unions. It also alleges that she engaged in a bank fraud scheme involving a $2 million line of credit issued to an organization called Friends of the Credit Union and used advances of the line of credit to refinance other loans, cover up negative account balances and generate false interest income.

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

The Property and Casualty Initiative is suing NCUA for not returning $630,865.25 after the liquidation of D. Edward Wells, according to court documents in that case. PCI, a group of property and casualty insurers that invest in low-income communities in Massachusetts, had made an investment with FOCUS, which placed the funds in the credit union. The two sides agreed to work on a settlement in the case, which is expected shortly, according to NCUA. -scooke@cutimes.com

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Carol Aranjo and Others in D. Edward Wells Alleged Fraud Case Arrested

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