Vensure Federal Credit Union has sued the NCUA in federal court to prevent the agency fromtaking control of its operations.

The NCUA placed the $2.7 million Vensure FCU intoconservatorship April 15 after its biggest depository account wasseized as part of an ongoing federal investigation into allegedlyunlawful internet gambling transactions.

In its brief before the U.S. District Court for the District ofColumbia, Vensure sought a temporary restraining order against theagency. The Mesa, Ariz.-based credit union claimed that the NCUA'stakeover was “arbitrary and capricious” and that it had already obeyed theagency's demands to put itself on a sounder and more legally securefooting when the NCUA acted.

But U.S. District Judge Rosemary Collyer swiftly denied thecredit union's request for both a temporary restraining order andexpedited discovery, because the code reads, “[e]xcept as providedin this paragraph, no court may take any action, except at therequest of the board by regulation or order, to restrain or affectthe exercise of powers or functions of the board asconservator.”

But the judge did not throw out the case, and ordered governmentlawyers representing NCUA to appear on May 11 to defend the NCUA'sactions and show why the Vensure conservatorship should goforward.

Vensure began its argument by acknowledginginformation the NCUA had not yet released: That it had made themajority of its money for the last two years by providing automatedclearing house services to a business member who processedfinancial transactions for two of the largest online poker sites,PokerStars and Full Tilt Poker.

The CU also revealed in its filing that the business member,Trinity Global Corp., was its largest depositor, with roughly $2million in the CU. It also claimed that having the business of sucha large and robust depositor had helped it begin to expand itsoperations to resemble those of a more run-of-the-mill, albeitvirtual, credit union.

“VFCU has used the revenues received from those ACH services tobuild its reserves and to open the credit union to a new field ofmembership–persons associated with Vensure Employer Services, Inc.,a growing professional employment services company based in Mesa,Arizona, with over 12,000 participants,” the credit union wrote,adding in another part of the brief that it had added approximately61 accounts this year as of March 31 for a total of 144.

In its filing, which the court had ordered sealed but CreditUnion Times obtained, Vensure identified five reasons that itsaid the NCUA had provided for the conservatorship.

First, the seizure of the funds in the Trinity account meant theCU would no longer have access to “material sources of income” tobe able to operate as a concern. Second, the extent of therelationship between the CU's leadership and the leadership ofTrinity is not fully known, especially in light of the ongoingcriminal investigation. Additionally, Vensure's alleged involvementin an illegal activity put the NCUSIF at risk for a loss, and theU.S. Attorney for the Southern District of New York will likelyseek forfeiture of the fee income the CU made for its ACHprocessing for Trinity. Finally the CU faced a possible run frommembers whose confidence had been undermined by the CU's service ofTrinity and possible losses “would destroy [Vensure's] ability tocontinue in operation as a going concern.”

Vensure strongly objected to each of thesegrounds, and suggested that the NCUA had no hard evidence to backany of them.

For example, Vensure sharply rebuffed the agency's firstcontention that all the CU existed to do was to serve Trinity andprocess transactions for Trinity. The CU pointed out that itsmembership had been growing steadily, although slowly, and that ithad put in place marketing and loan programs aimed at growing itsmembership.

Vensure also pointed out that its leadership had already votedin late January to sever its relationship with Trinity as theagency demanded, and that the agency had not suggested then thatthe CU would not be able to support itself without Trinity'sbusiness.

The now $2.7 million CU reported fee income in 2010 of $1.8million.

To answer the agency's second charge, that the CU might beinvolved in the gambling operation, Vensure highlighted that theNCUA was aware of the relationship and the credit union hadprovided the agency with “dozens of reasoned legal opinionsattesting to the fact that online poker is not unlawful internetgambling” under the Unlawful Internet Gambling Enforcement Act andhad obtained certifications required by the UIGEA that it was notprocessing transactions from states where Internet gambling orpoker might be illegal. Vensure also noted that while one of theaccounts had been named in the legal proceeding, the credit unionitself was not named as a defendant.

The CU also argued that the NCUA had violated the CU's rights todue process.

“Neither VFCU nor its member Trinity have been indicted or sued,nor even accused by the [U.S. Attorney] of unlawful or wrongfulbehavior,” the CU argued. “Nor can NCUA seriously claim that VFCUwas in violation of any law. Notwithstanding, NCUA–in a knee-jerkresponse to the indictment–immediately ordered VFCU intoconservatorship without any prior warning, a hearing or even anopportunity to supplement the administrative record to rebut any ofits far-fetched claims that VFCU either was or had the potential tobecome insolvent.”

With all that said, credit union legal authorities maintain thatthe CU faces a very high burden to see the conservatorshipreversed. The last CU to have tried, the Kappa Alpha Psi CreditUnion, another virtual credit union, saw its effort fail lastyear.

NCUA had not yet returned calls or emails for comment as ofpress time.