The U.S. District Court of New Jersey has sided with SperryAssociates Federal Credit Union in a case involving a CUMISfidelity bond and whether fraud committed by two mortgage companiesimpacted coverage.

In 2006, the $307 million Sperry in Garden City Park, N.Y.,entered into a mortgage loan servicing agreement with CU National Mortgage, which also agreed to assist in sellingany mortgages to the secondary market, according to Sperry'scomplaint. The agreement did not authorize CUN or its parentcompany, U.S. Mortgage Corp., to endorse, assign or sell anymortgages without Sperry's consent.

Both mortgage companies, along with officials overseeing theentities, were later charged with fraud for selling the loansbelonging to Sperry and other credit unions without their consent.The mortgages were then sold to Fannie Mae.

In February 2009, Sperry notified CUMIS of its losses related to the CUN and U.S.Mortgage scheme. In August of that same year, CUMIS filed an actionthat it did not have duty to indemnify Sperry or any of the other25 credit unions that were involved in the mortgage fraud case.

Since 2009, the case went through a series of proceedings andamended complaints.

On March 1, the New Jersey U.S. District Court ruled for Sperry.The decision could be good news for the other credit unionsimpacted by CUN, said Ken Pagliughi, an attorney representingSperry.

“In addition to this case where Sperry received a favorabledecision as to coverage under its CUMIS Bond, Picatinny Federal Credit Union has a matter currently pendingin the U.S. District Court of New Jersey and Suffolk Federal CreditUnion has a matter pending in U.S. District Court for the EasternDistrict of New York,” Pagliughi told Credit Union Times.“Both the Picatinny and Suffolk matters have the same coverageissues in contention as were decided by the court in the Sperrymatter.”

Pagliughi said CUMIS has not filed a notice of appeal but it hasindicated that it is likely an appeal will be filed. A comment fromCUNA Mutual Group, CUMIS' parent company, was not immediatelyavailable.

Since being issued an NCUA letter of understanding in May 2010to correct several problems, Sperry said it eliminated positions,implemented its net worth restoration plan, and reduced operatingexpenses.