"In addition to this case where Sperry received a favorable decision as to coverage under its CUMIS bond, Picatinny Federal Credit Union has a matter currently pending in the U.S. District Court of New Jersey and Suffolk Federal Credit Union has a matter pending in U.S. District Court for the Eastern District of New York," Pagliughi told Credit Union Times. "Both the Picatinny and Suffolk matters have the same coverage issues in contention as were decided by the court in the Sperry matter."

CUNA Mutual Group, the parent company of CUMIS, said it will appeal the court's decision.

"The trial court's decision is unfortunate and represents an overly broad interpretation of who is covered under the bond's employee dishonesty coverage. But in cases involving complex legal issues like this one, it is often up to the appellate courts to render a final decision, and we intend to seek appellate review in this case," wrote Phil Tschudy, CUNA Mutual media relations manager, in a March 5 statement to Credit Union Times.

According to Sperry's complaint, CU National sold 27 of the credit union's mortgages valued at $9.49 million to the Federal National Mortgage Association without the credit union's consent or knowledge. To conceal the theft, CU National continued to act as servicer of the loans. When the firm received Sperry's payments, it transferred the funds to a clearing house and remitted them to FNMA, and a comparable payment was made to Sperry by transferring funds from a CUN/USM account. After the sale, the credit union continued to receive reports from the mortgage companies that showed it still owned the loans.

In February 2009, federal officials raided CUN/USM's offices where it was discovered that 26 credit unions were scammed by the mortgage companies. In February 2011, Michael McGrath, president of both firms, pleaded guilty to his involvement in the scam on several charges, including conspiracy to commit money laundering and conspiracy to commit wire fraud.

The fidelity bond issued to Sperry from CUMIS was identical to the CUMIS Form 500 bond that was issued to the 26 credit unions that were also defrauded by CUN/USM, according to Sperry's complaint. In February 2008, Sperry sent CUMIS notice that it had losses from the mortgage company scam. In September of that year, Sperry and CUMIS entered into a tolling and standstill agreement in which CUMIS agreed not to investigate the loss claims and to not take any further action until December 2009.

Sperry said at the time of the agreement, CUMIS did not inform it of an August 2009 action that it had no duty under the CUMIS Form 500 bond to indemnify the 26 credit unions defrauded by  CUN/USM. After a series of actions between the two parties after the tolling agreement expired in January 2010, including a breach of contract from Sperry claiming breach of contract from CUMIS, the credit union presented the court with several pieces of evidence to show that it had been defrauded, including an affidavit from McGrath, who acknowledged that Sperry never provided consent to the sale of its loans.

CUMIS questioned whether CUN/USM actually sent false reports to Sperry about the loans. If that were the case, CUMIS argued that the mortgage firms would not have serviced the loans at the time the reports were sent.