How NCUA Charges Could Impact Your Credit Union

August 8, 2018 at 8:58 am 1 comment

Late yesterday, the NCUA announced that it was filing seven administrative charges against former Melrose Credit Union CEO and Treasurer Alan Kaufman alleging that he misused credit union funds to benefit himself and close associates. The NCUA is seeking $3.5 million in restitution against Kaufman and a $1 million civil penalty.

The NCUA has determined that Alan Kaufman “has violated the law, breached his fiduciary duties, engaged in unsafe and unsound practices in his role as chief executive officer, treasurer, and member of the board at Melrose Credit Union.”

Melrose is one of New York’s so called “Medallion Credit Unions” which prospered for decades by specializing in making taxi cab medallion loans but, in recent years, has suffered severe losses as medallion prices have plummeted. In 2016, the state chartered institution was taken over by New York’s Department of Financial Services and the Department named the NCUA as conservator.

Among the allegations is that Kaufman improperly solicited and accepted free luxury trips, loans, and housing from Melrose vendors, misled the Melrose board into approving a $2 million naming right agreement “that had essentially no value to Melrose but generally benefitted Kaufman’s personal benefactor,” created a separate medallion brokerage company from which he personally benefitted but for which Melrose personnel were used as employees, and used credit union funds to benefit friends and family by, for example, entering into a decades-long consulting agreement with his father, the former CEO of the credit union, without receiving periodic approval from the board of directors, and using credit union funds to reimburse non-business trips taken by himself and family members. All of this is alleged to have been done in violation of board policy and without board approval.

If I were at a credit union this morning, one of my top priorities would be to review the credit union’s expense and reimbursement policy, discuss it with the board at the next meeting, and update it if need be. The issue is now on the examiner radar.

Having a policy is not enough. I would also review a sample of credit union reimbursements and make sure that they are consistent with the policy and that they have been approved by the board when necessary.

As judges like to say to juries, an indictment is nothing more than a series of unproven allegations and the same is true of NCUA’s assertions against Mr. Kaufman. Nevertheless, credit unions should review the substance of the allegations not because CEOs have engaged in similar conduct, but because I believe the vast majority of them have not and I want them to be in a position to prove it.

Entry filed under: Compliance, General, Legal Watch, Regulatory. Tags: , , , , , , .

Bankruptcies Increasing For Older Americans Too Little Too Late for Taxi Medallions?

1 Comment Add your own

  • 1. gerard Herrling  |  August 8, 2018 at 9:49 am

    Wise counsel Henry!

    Gerry

    Sent from my iPhone

    Reply

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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