$40 Million in Member Funds Down the Drain. NCUA: Sit Up and Take Notice

News & Insights

The first credit union failure of the year has occurred – and while we may have seen it coming, the National Credit Union Administration apparently (again) did not. In late March, NCUA announced the liquidation of CBS Employees Federal Credit Union in Studio City, California, after “determining the credit union was insolvent with no prospect of restoring viable operations on its own.” Wondering the real cause of this immediate shutdown?

Turns out that a former 30-year NCUA examiner working as a manager at CBS Employees had stolen $40,541,130 from the credit union since 2000 to fund a “lavish lifestyle with purchases such as luxury cars, expensive watches and private jet travel.” The employee said it was easier to get away with thanks to his previous experience at NCUA (hint: maybe it’s time to establish some standards on who can work at a credit union, preferably not people with this inside knowledge on regulatory processes…?)

Yes, of course, this employee’s actions are disturbing. But what’s more alarming? The fact that it took the industry regulator almost two decades to catch him. And even when NCUA finally did, it was only because another employee within the credit union tipped the agency off.

Where was the regulator for the last 20 years? NCUA is supposed to be inspecting credit unions every 18 months at a minimum. This means that 1) NCUA evaluated CBS Employees at least 19 times while this was happening but was careless and lazy in its analysis; or 2) NCUA didn’t do its job at all. Neither explanation makes this case easier to swallow.  

And NCUA’s genius solution to this madness? Sweeping the real problem under the rug by forcing University Credit Union to assume CBS Employees’ assets, loans, and member shares. This not only doesn’t address the real issues (that NCUA isn’t regulating effectively) but also implicitly condones this behavior since there are no real consequences to those who could have prevented this from happening in the first place.

This is hardly the first time NCUA has missed financial crimes committed by credit union employees (in some of the worst cases, the crimes were made by top executives). Perhaps because of credit union growth at “no speed limits,” NCUA has become too overwhelmed by the industry’s size to regulate it properly. Things are falling through the cracks left and right at even some of the biggest credit unions. CBS Employees has 2,800 members – that’s 2,800 innocent members who were all subject to major risks thanks to a lack of force by NCUA. Congress either needs to expand NCUA’s resources or regulate the industry itself in order to ensure members are protected from greedy individuals and institutions in the credit union industry.

By the way, if you really need further proof, here are the other 20+ cases of embezzlement and fraud in credit unions that occurred in 2018 alone…all of which could have been caught sooner by NCUA.

  1. February 1, 2018, The Seattle Times: Ex-Scranton credit union CEO sentenced for bank fraud
  2. February 13, 2018, Crain’s Detroit Business: Former credit union CEO pleads guilty in embezzlement case
  3. March 5, 2018, The Topeka Capital-Journal: Parsons woman sentenced for embezzling millions from credit union
  4. March 7, 2018, Credit Union Times: Former Oklahoma CU CEO Gets Probation for Embezzlement
  5. April 19, 2018, Credit Union Times: Former CU CEO & Teller Plead Guilty to $1 Million Embezzlement Scam
  6. April 20, 2018, Credit Union Journal: Former North Carolina credit union CEO charged with fraud, embezzlement
  7. May 4, 2018, Oshkosh Northwestern: Former Oshkosh Central Credit Union bookkeeper gets prison for embezzlement
  8. May 18, 2018, Credit Union Times: Longtime Credit Union CEO Sentenced for Fraud
  9. June 12, 2018, Credit Union Times: Municipal Credit Union Board Fires Accused CEO Kam Wong
  10. June 20, 2018, wjhl.com: Former Johnson City credit union CEO pleads guilty to embezzlement, tax evasion
  11. June 28, 2018, Credit Union Times: Men Involved in $4 Million CU Loan Scheme Face Sentencing
  12. July 20, 2018, Credit Union Times: Former Credit Union Board Chair Found Guilty
  13. September 4, 2018, Credit Union Times: Former CU Branch Manager Sentenced for Bank Fraud
  14. September 10, 2018, Credit Union Times: Feds Accuse Former Cu Mailroom Employee of $5.4 Million Embezzlement   
  15. September 19, 2018, The Island Now: Ex Winthrop credit union COO charged with $465K embezzlement
  16. September 21, 2018, Credit Union Times: Former Florida CU Employee Pleads Guilty to Fraud
  17. October 17, 2018, Credit Union Times: Former Indiana CU Assistant Manager Sentenced for Bank Fraud
  18. October 31, 2018, Credit Union Times: NCUA Bans Four Former Credit Union Employees
  19. November 15, 2018, Credit Union Times: Fraud Sends Former CU Manager to Prison for 30 Months
  20. November 30, 2018, Credit Union Times: NCUA Bans Former Melrose Credit Union Lawyer
  21. December 20, 2018, Credit Union Times: Former Credit Union Employees Indicted for Embezzlement

And in 2019:

  1. April 5, 2019, Credit Union Times: Former Minnesota Credit Union CEO Pleads Guilty to Fraud
  2. April 25, 2019, ABC Tallahassee: Former Credit Union Lending Director pleads guilty to bank fraud, identity theft charges