On May 17, after a year of housecleaning at the Municipal Credit Union in the wake of a multi-million-dollar scandal, state banking regulators abruptly took possession of the credit union and turned it over to the National Credit Union Administration for conservatorship.
The NCUA is chartered by Congress and is the credit union equivalent of the Federal Deposit Insurance Corporation, which regulates the nation’s banking sector and insures the accounts of depositors.
Credit unions are nonprofit institutions that are cooperatively owned by the members/depositors who have shares in the financial institution and vote for the credit union’s Supervisory Committee and Board of Trustees, who serve without compensation.
Won’t Affect Services
MCU members will continue to have uninterrupted service at the credit union’s 22 branch locations to conduct their usual transactions, deposit and access funds, make loan payments, and use their shares during the conservatorship.
A year ago Kam Wong, the MCU’s then-CEO, was arrested for embezzling more than $10 million over several years from the 103-year-old institution. In November he pleaded guilty, without formally being indicted. He is set to be sentenced on June 4.
In a copy of the pre-sentencing memorandum filed May 20 by Federal prosecutors, the government disclosed that the damage done to MCU by Mr. Wong’s scheme was so extensive that the credit union “continues to work to uncover and unwind the damage he wrought” and “has not been able to file an amended 990 [the tax form for nonprofits that are tax-exempt], and was recently placed in receivership.”
Prosecutors also said of Mr. Wong that “since his guilty plea, despite having earned millions of dollars lawfully and millions more unlawfully, and despite having substantial assets, the defendant has not voluntarily paid a single cent toward forfeiture,” which they said could be applied as restitution.
According to his attorney, Jeffrey Lichtman, “there’s no order for restitution in place yet from the Court—so in my 28 years of practice, it has been impossible to pay restitution pre-sentencing…The government knows this so I’m not sure why they are pretending that Mr. Wong has done something wrong—he hasn’t.”
A victim’s statement filed by the MCU told the court “the defendant did not steal over $10 million from a faceless corporation, but from the hundreds of thousands of New York City municipal worker members who rely on the Credit Union for financial security, and the hundreds of New Yorkers the Credit Union employs.”
The statement continued, “The defendant did not enrich the lives of the Credit Union’s members—many of whom are police officer, teachers, firefighters, clerks, nurses, home health aides, taxi dispatchers, cemetery workers, social workers or counselors-he sought only to enrich himself and his self-worth.”
Had to Act Quickly
In a May 17 press release from the state Department of Financial Services, Acting Financial Services Superintendent Linda A. Lacewell said it needed to take the abrupt action “because of unsafe and unsound conditions” at the $3-billion credit union.
“Member accounts at MCU are protected by the National Credit Union Share Insurance Fund, which is administered by the NCUA,” she stated. “The Share Insurance Fund insures individual accounts up to $250,000; a member’s interest in all joint accounts combined is insured up to $250,000. The NCUA Share Insurance Fund also separately protects IRA and KEOGH retirement accounts up to $250,000. The Fund has the backing of the full faith and credit of the United States.”
“DFS is taking possession of MCU and appointing the NCUA as conservator in order to continue the close joint DFS/NCUA monitoring of the credit union’s condition, operations, and controls, to ensure that member funds are protected and that member services continue without interruption,” Ms. Lacewell said.
A month after Mr. Wong’s arrest, state regulators cited MCU’s Supervisory Committee and the Board of Trustees for “severe deficiencies in their oversight of the overall management of the affairs of the credit union” and dismissed them.
7 Ex-Members Sue
Seven of the ten board members filed a legal challenge in State Supreme Court which is still under seal and pending. According to those filings, one plaintiff in the caption was Tony Abdullah, a former MCU board member who joined in 2016, and currently the Chief Officer of the New York City Transit Rail Control Center.
Their suit alleges that they were summarily dismissed without required due process, which includes an administrative hearing to defend themselves against the allegations that were leveled by Albany regulators. The suit maintains that the board’s termination came just as it was making real progress on its own internal investigation that started in January of 2018 after it was served with Federal subpoenas.
Mr. Wong was banned for life from the credit-union industry by the NCUA last May, several months pleaded guilty.
According to the Credit Union Times, which first reported the NCUA conservatorship, MCU’s financial performance report filed with the NCUA, “does not show that the credit union is in any financial distress, although its net worth has declined from 8.76% in 2014 to 7.59% at the end of the first quarter of this year.”
Stable, But Earnings Down
“What’s more, the credit union has shown no substantial declines in its total loans or loan income though its net income declined from $17.5 million in 2017 to $11.4 million at the end of last year,” the publication reported. “At the end of the first quarter of this year, MCU recorded a net income of $2.8 million, down from the net income of $4.6 million in March 2018.”
MCU’s membership also increased by 37 percent last year, the industry newspaper reported.
Bob Croghan, president of the Organization of Staff Analysts and a long time MCU activist, is concerned about the lack of public information coming from regulators about a community institution that’s co-operatively owned by hundreds of thousands of civil-service households.
“I do think that one of the things that is missing is transparency on the part of the government,” he said in a phone interview. “The government has discovered extreme wrongdoing has occurred, but rather than let everyone know what is going on, they drop a veil of secrecy over what they are doing.”
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