The National Credit Union Administration board on Tuesday filed administrative charges against Alan S. Kaufman, former chief executive officer, treasurer and board member of New York City-based Melrose Credit Union.

NCUA said in a statement it tapped an “infrequently used authority” to bring charges against Kaufman. The regulator is seeking a prohibition order against Kaufman and is requesting he be ordered to pay restitution of at least $3.5 million.

In addition, the NCUA board assessed Kaufman a civil money penalty of $1 million.

The seven-count notice of charges was filed with the Office of Financial Institution Adjudication. NCUA alleges Kaufman breached his fiduciary duties to Melrose CU by “placing his own interests above those of the credit union,” that he engaged in “unsafe or unsound practices,” and that he violated applicable laws and regulations.

The notice further alleges Kaufman benefitted from his actions and that he caused “severe financial loss” to Melrose.

“These practices and breaches involved personal dishonesty by Kaufman and demonstrated Kaufman’s unfitness to serve as a director, officer, and to otherwise participate in the conduct of the affairs of an insured credit union,” the charges state in part.

According to NCUA, Kaufman joined Melrose Credit Union in 1984 and, in 1998, became CEO, treasurer and a member of the board. On July 5, 2016, Melrose CU’s board removed Kaufman from his position as CEO and, later that year, Kaufman was removed as a board member and secretary for the credit union.

Kaufman’s grandfather is described as being “instrumental” in the founding of Melrose CU, and served as the credit union’s CEO and a member of its board until his death. Thereafter, Kaufman’s father became the CU’s CEO, treasurer and a member of the Melrose board.

The CU is located in the Briarwood neighborhood in the New York City borough of Queens. It currently has $1.2 billion in assets, down from $1.9 billion just two years ago.

As CU Journal has reported, Melrose Credit Union was one of several NYC-area credit unions with heavy concentrations in taxi medallion lending that suffered significant delinquencies and losses in the wake of the rise of ride-hailing services such as Uber and Lyft. The credit union was placed into conservatorship early in 2017.

Details from the charging document

An evidentiary hearing has been scheduled before an administrative law judge of the Office of Financial Institution Adjudication on Sept. 28. Kaufman is required to file an answer within 20 days of service of the Notice of Charges. Per the Certificate of Service, that took place on Aug. 3.

In the document, NCUA alleges Kaufman violated several relevant policies in place at Melrose CU, including its Fraud Policy, Prohibited Conduct Policy, Business Conduct Policy and Policy Regarding Bank Bribery Law. In the seven counts against Kaufman:

  1. NCUA alleges Kaufman solicited and accepted “free luxury trips” from vendors who supplied services to Melrose CU, including a trip to the Super Bowl.
  2. NCUA alleges Kaufman improperly solicited and accepted exclusive, rent-free use of a residence for more than two years from an unnamed vendor/borrower, while in exchange personally approving loans with special terms to this person.
  3. NCUA alleges Kaufman misled Melrose CU’s board into approving a $2 million naming rights agreement that “had essentially no value to Melrose but greatly benefitted Kaufman’s personal benefactor.”
  4. NCUA alleges Kaufman improperly solicited and accepted a $240,000 personal loan, as well as co-signing a $200,000 share-secured loan from an individual who was at once a vendor to, member of a borrower from Melrose CU.
  5. NCUA alleges Kaufman “improperly converted Melrose’s resources for his personal gain,” in connection with the formation of a company known as Briarwood Transfer Services LLC, which served as a third-party broker for taxi medallions.
  6. NCUA alleges Kaufman improperly maintained a contract with his father for more than 19 years and improperly used Melrose’s funds to pay for his father’s and stepmother’s airfare, hotel and meals.
  7. NCUA alleges Kaufman improperly converted Melrose’s funds to pay for non-business limousine trips for him and his extended family.

Several names were redacted in the document by NCUA.