CLEVELAND – A federal judge last week directed NCUA to provide thousands of pages of documents related to the 2010 failure of St. Paul Croatian FCU, the largest fraud in credit union history, to the biggest clamant in the liquidation.

The documents were requested by Holy Love Ministries, a tiny church in nearby Eastlake that lost $1.5 million of uninsured deposits in the case that claims NCUA officials assured them just days before that they could withdraw the funds as part of the liquidation process.

In a civil suit over the claim, the tiny church alleges NCUA officials committed fraud when they told church officials a day prior to the April 2010 takeover of the $240 million credit union that the Church would be allowed to withdraw the funds under so-called hardship rules. NCUA eventually denied the claim and paid the Church the maximum $250,000 allowable under federal deposit insurance rules, leaving it with a $1.5 million loss-the biggest of any depositor in the fraud-ridden credit union.

The tiny church is among dozens of St. Paul Croatian depositors who were stuck holding the bag for the huge fraud, estimated to cost $170 million to resolve, after NCUA apportioned out deposit insurance payments. Other victims include: St. Mary of the Assumption Roman Catholic Church in Eastlake, a loss of $150,000; Acme FCU of Eastlake, $127,000; Cascade FCU of Kent, Wash., $251,000; and Employees CU of Dallas. At least three individual members have also filed suits against NCUA saying they have lost uninsured deposits. One elderly couple says it lost more than $500,000, the bulk of their retirement savings.

The Church has raised numerous questions about NCUA’s secretive liquidation process. Among them is the disparate treatment of institutions and individuals in the liquidation process. In the Holy Love case, for example, NCUA noted that individuals are permitted under federal law to layer their accounts, that is take out as many as six separate accounts of $250,000, making them eligible for as much as $1.5 million deposit coverage; while institutions are only allowed coverage on one such account—a total of $250,000.

But also raising questions is the attempted withdrawal by the Church of its funds in the days before the historic failure. The request was made by the Church’s representative on the St. Paul Croatian board of directors, raising the question was he privy to inside information that other members did not have access to.

NCUA argued to the U.S. District Court for the Northern District of Ohio that the federal court does not have jurisdiction over the Church’s claim until the Church has exhausted its administrative remedies by filing an additional action under the Federal Tort Claims Act.

But the court rejected NCUA’s claim last week, directing NCUA to turn over thousands of pages of documents related to the landmark fraud.

NCUA and the U.S. Department of Justice have so far recovered some $10 million in the case in restitution orders and loan repayments, but Holy Love Ministries has been stymied so far in seeking a portion of the funds.

Lawyers for the Church said NCUA mislead them when the Church’s representative on the board requested the day before the NCUA takeover to withdraw all of their funds and were told to wait until after the weekend.

Prior to an April 22, 2010 board meeting, the Holy Love representative on the Board told NCUA examiner Kim Paige he wanted to withdraw the Church’s deposits and was advised to wait until Monday, April 26, because the credit union was being examined and the withdrawal might create a problem with the exam, according to court records. When the Church representative also asked the interim credit union manager to withdraw the money he was told the same thing.

On the following day, NCUA called another Board meeting and dismissed the entire Board and put the credit union into conservatorship on April 24. That Monday, April 26, NCUA liquidated St. Paul Croatian and allowed depositors a maximum of $5,000 withdrawal. That day NCUA posted a letter saying “On a case by case basis, the conservator will consider requests for an exception to this policy, for example in the event of an emergency to meet a previously established commitment, such as a home purchase.”

Holy Love, which had counted on its deposits to fund a $12 million building project, requested such a “hardship” exception on numerous occasions, as the work on its building project was already well under way. But NCUA denied all of its requests. “The offer seems to have been misleading or fraudulent,” claims the church in its court pleadings. Later, despite the April 26 NCUA letter, the Church was told no such hardship exception exists.

The Church says an internal NCUA report issued by the Office of Inspector General blames NCUA examiners for missing the massive fraud and asserts “This, in and of itself, should be sufficient to entitle Holy Love to a full refund of their monies.”

The credit union was victim to a massive fraud perpetrated by its CEO, Anthony Raguz, who confessed to accepting more than $1 million in bribes to approve tens of millions of dollars in loans the borrowers had no intention of repaying.

 

 

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