LARGO, Fla.-A federal court has ordered Pinellas FCU into mediation over the alleged embezzlement of its former CEO, Linda Reynolds, and more than $50,000 of Reynolds' accounts the credit union froze as security against the alleged theft.

Reynolds, decorated as NAFCU's 2009 CEO of the Year, was fired last November after the $85-million credit union alleged she embezzled hundreds of thousands of dollars over the years by hiring family members and friends as contractors at inflated rates, often for services that were never provided, then diverted some of the payments to her personal accounts. The credit union also alleges Reynolds used the company credit card for personal expenses that were never reimbursed.

The credit union froze more than $50,000 of Reynolds' funds, including her final paycheck, her military retirement pay, savings, and the several accounts Reynolds holds jointly with her grandchildren, to protect against losses related to the alleged embezzlement.

A suit filed by the credit union is asking the federal court for a highly unusual preliminary injunction order to allow the credit union to create "constructive trust" in which all of Reynolds' funds would be placed and frozen until a legal disposition can be determined.

Reynolds, who served as CEO of the credit union for 15 years, has filed a countersuit in federal court against Pinellas Federal Credit Union asking the court to reverse the freeze, which she says has caused her to miss bill payments and to incur overdraft fees.

The federal court last week referred the dispute to mediation and directed the sides to choose a mediator before Sept. 24. Mediation shall be conducted on or before March 1, 2013.

Subscribe Now

Authoritative analysis and perspective for every segment of the credit union industry

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.