Credit union investors who lost money in embezzlement partially repaid

New London institution closed eight years ago

Eight years after auditors shut down a local credit union to end a longtime embezzlement scheme, 13 account holders who lost deposits over $100,000 finally have received some of their money back, the National Credit Union Administration said Wednesday.

John Fairbanks, an NCUA spokesman, said in an email that about a third of the $570,000 in uninsured accounts above the government deposit threshold at the time had been returned to former members of the New London Security Federal Credit Union. The insurance threshold has since been raised to $250,000.

The release of nearly $197,000 last month came from a settlement the NCUA secured in a lawsuit against Wells Fargo Advisors, the successor of the brokerage house that employed longtime credit union adviser Edwin F. Rachleff, a New London resident accused of carrying on a 20-year embezzlement scheme.

Rachleff, who committed suicide the day the credit union was dissolved, stole nearly $12 million.

“This is ... the end of the case,” Fairbanks said. “NCUA as liquidating agent has no further legal action pending or planned.”

Fairbanks did not directly address questions of why it took so long to compensate account holders after the lawsuit was settled late last year, but called the case a complex one to unwind, “particularly since the perpetrator was not a credit union employee.”

The NCUA would not specify the amount it received in the Wells Fargo settlement.

Mark Fetcher, a Florida resident who had two accounts at the Jewish-run credit union, said he received his checks Aug. 25. But he feels that the NCUA, which compensated insured account holders a total of $9.9 million, stiffed him $100,000 by claiming that each individual, rather than each account, was entitled to $100,000.

He also questioned the long delay between the end of the court case and his receipt of the money, saying he suspected lawyer fees were eating away a significant portion of his compensation both before and after the settlement.

“For seven years attorneys were grinding through the settlement money,” Fetcher said in a phone interview. “What took that long? How did they not figure out what happened to the money? And why was the Rachleff estate not held responsible?”

NCUA at one time had sued the Rachleff estate, but later dropped the case when it was found he had very little money in his name. The agency rejected a claim once made by Naomi Rachleff, Edwin's widow, for $1.4 million that she said her husband had transferred to the credit union from the couple's personal account.

Fetcher also had a slew of other questions, such as why the NCUA decided to drop its case against the credit union's board of directors, which had been blamed for lax oversight in the agency's 2008 liquidation report. Rachleff reportedly had a former credit union manager type numbers into blank investment statements that he then submitted to the New London Security board.

“Why weren't officers, board members, accountants held liable for being asleep at the wheel while Rachleff falsified records year after year,” Fetcher said in an earlier email. “Why didn't credit union people question (Rachleff's) hand-written statements?”

The 82-year-old investment adviser, who had been under criminal investigation since a June 2008 audit, committed suicide a month later by jumping off the top of the Mohican Senior Apartments in New London, according to NCUA documents. It was the same day the NCUA began its liquidation of the credit union's assets and publicly declared New London Security insolvent.

“Investment brokerage statements appeared to be fabricated,” the liquidation report said. “Management allowed the account manager to handle all investment activity without adequate oversight.”

NCUA filed lawsuits in 2010 naming Wells Fargo, along with others since dismissed from the suits, as responsible for the credit union's failure.

Fetcher was one of five people who sued the NCUA about the same time in an attempt to recoup losses related to the credit union failure. But a federal court said the NCUA's suit against Wells Fargo had to be heard before credit union members could sue.

Fetcher held out the possibility that he and others might re-file the suit now that the Wells Fargo case is settled. He also said he has been in contact with the state Attorney General's Office to see whether it could intervene in the case.

The NCUA has made several changes in its policies after the New London financial institution's failure, including instituting new national supervision criteria for conducting quarterly reviews of small credit unions.

“The first line of defense is the credit union's management and having processes and policies in place to reduce the possibility of fraud and mitigate losses when it happens,” NCUA spokesman Fairbanks said.

As for the predicament of Fetcher and others who went years without access to their money and then received only a fraction of what had been in their accounts, Fairbanks pointed out that insured members were paid promptly and that the uninsured still had received some compensation.

“Had there been no recoveries on behalf of the (credit union) estate, there would have been no relief for those uninsured accounts,” he said.