NEW HAVEN, Conn. – A federal appeals court on Friday rejected a request by members of New London Security FCU to recover $4 million of uninsured deposits from NCUA they lost in the spectacular 2008 failure of the $13 million credit union, which involved the suicide of the credit union’s investment manager.
In denying the appeal, the U.S. Court of Appeals for the Second Circuit sided with NCUA, which argued in lower court that the five members filed their legal challenge three weeks too late and missed the six-month statutory deadline for appealing NCUA’s administrative ruling in the case. “The district court properly deemed it untimely and dismissed for lack of subject matter jurisdiction,” said the appeals court in Friday’s ruling.
The members claimed that NCUA was responsible for all of their losses because its examiners failed – for more than a decade – to spot a fraud by the credit union’s elderly investment manager who also was a director, wiping out $12 million of the credit union’s assets. The 82-year-old investment manager, Edwin Rachleff, leaped to his death from the 11th floor of a nearby building in July 2008, just hours after NCUA shut the 72-year-old credit union, chartered to serve local Jewish affinity groups.
In their suit, Melvin Goldblatt, Joan Lazerow, Mark Fetcher, Gloria Johnston and Douglas Antupit claimed NCUA I was responsible for their uninsured losses because its examiners ignored signs of the fraud and failed to conduct on-site reviews for years at a time. Their suit, however, was dismissed by the lower court because they failed to file their claim within the legally allotted time frame.
The group argued to the court they were entitled to additional consideration because the “pursued their rights diligently.” But the court rejected this argument.
NCUA paid almost $10 million to New London Security members but denied claims for anything over $100,000 per account, which was the legal limit on federal deposit insurance coverage at the time. The limit has since been increased to $250,000 per account.
An internal report issued by NCUA’s own Inspector General found that had NCUA taken stronger supervisory actions it might have uncovered the fraud sooner and mitigated the final losses.