Credit Union Employee with Information about Fraud? Employees of NCUA Insured Credit Unions Are Eligible for Cash Whistleblower Rewards
Shreveport Louisiana is a sleepy little city. Not much happens there. So it was big news on April 13th, 2017 when the government showed up and changed the locks on the doors of the Shreveport Federal Credit Union. Founded in 1956, for decades the credit union served thousands of families in northwest Louisiana.
Typically the feds step in at 5:00 pm on a Friday when taking over a bank. This time the takeover took place on a Thursday evening as the bank was already going to be closed for Good Friday weekend.
Having previously represented the FDIC and the former Resolution Trust Corporation, I am familiar with how the feds takeover a bank. They do so with no advance notice and like to come in over a weekend so that on Monday morning customers can walk in with little or no disruption of service. The weekend gives bank regulators time to seize books and records and place a new management team in place.
Credit unions are regulated by the National Credit Union Administration, a federal agency located in Alexandria, Virginia. When the NCUA takes action against a struggling credit union, it usually tries to do so through a conservatorship where new management is installed. If there is no likelihood that the bank can be saved the agency can order a liquidation. Either way, customer accounts are protected up to $250,000.00.
When the NCUA took control, it issued a press release that said very little. In a separate FAQ page, the agency simply said it was taking action “to maintain safe and sound credit union operations.”
In October, the NCUA determined that there was “no prospect for restoring viable operations.” The agency ordered the credit union liquidated and the accounts were transferred to the Red River Employees credit Union of Texarkana.
We know of at least two other credit union liquidations that year.
What Went Wrong (and What You Can Do to Help)
Sometimes a bank or credit union goes under because of conditions in the local economy. For example, a credit union serving a local military base would be in real trouble if the base closed and all the jobs were relocated to other areas of the country.
From what we now know, Shreveport Federal Credit Union went under because its CFO was embezzling (stealing) millions of dollars.
We now know that the day the before the NCUA took over Shreveport FCU, the credit union’s CFO died suddenly. Alesia Smith Cummings was just 51 years old. Her obituary doesn’t list her cause of death but we wouldn’t be surprised if she sensed that the feds were closing in.
Now that she is dead, the NCUA says she embezzled $13 million from the struggling credit union, probably enough to cause it to fail. (We remind readers that Ms. Cummings was never charged with any crime, she was dead at the time the NCUA took control of the bank.)
The CU Times now reports,
“Cummings was allegedly the only person engaged in a long-term embezzlement scheme, which the NCUA claimed its examiners independently uncovered during the spring of 2017.
“The alleged fraud included posting phony deposits to an array of automated clearing house receivable accounts such as undistributed payroll, accrued vacation and 401(k) match accounts. Cummings also allegedly created fake fees that were used to pay bonuses to employees, including large bonuses to Smith. The federal agency also claimed Cummings embezzled funds by making transfers from the ACH clearing accounts to her account, an account she jointly owned with her father to other accounts owned by Smith.”
Recently the NCUA obtained permission from a federal judge in Shreveport to sue the accounting firm that formerly represent the Shreveport Federal Credit Union. Regulators believe accountants should have uncovered the embezzlement years earlier when conducting annual audits.
FIRREA – Credit Union Whistleblower Rewards
In 1989 after the savings and loan crisis, Congress passed the Financial Institutions Reform Recovery and Enforcement Act (FIRREA). That law was designed to make it easier for prosecutors to go after bank officials and others that threaten the financial stability of banks. The law also applies to credit unions.
Although the Shreveport Federal Credit Union customers were protected when the agency brokered the sale of the failed credit union to another entity, bank liquidations still cost the government millions of dollars. That means taxpayers are left to foot the bill.
We don’t know if anyone at Shreveport FCU knew about the embezzlement. In our experience, an embezzlement of this size that went on for so many years probably didn’t escape notice by other bank employees. Banks are highly regulated and that includes significant record keeping obligations.
FIRREA was amended after the 2008 financial crisis and now allows the federal government to pay whistleblower rewards to anyone with information about certain types of bank fraud. If a bank officer’s behavior threatens the stability of the bank, there is probably a good chance of qualifying for a reward.
Had Smith – Cummings been stopped earlier, Shreveport FCU might never have gone into liquidation and taxpayers would be on the hook for another subsidized bailout. Unfortunately, we often see bank employees that are simply too afraid to speak out. Often there is the problem of knowing where to turn.
If you have information about fraud involving a federally insured bank or credit union, you may qualify for a bank whistleblower reward. Improper conduct covered by FIRREA includes:
- False entries in a bank’s books or records. (This section covers a wide variety of banking sins and can include bribes, AML or Anti Money Laundering violations and bad loan underwriting / servicing violations)
- Mail fraud
- Wire fraud
- Making false statements or false entries in books and records. Merely concealing misconduct could trigger liability.
- Illegal gifts or commissions for procuring loans
- Theft, misapplication or embezzlement by a bank officer or employee.
- Use of false statements with respect to loan applications. (Useful for prosecuting outside third parties whose actions harm banks.)
- Improper influence of the FDIC
- Defrauding / Attempting to defraud a bank
- False statements and overvaluing of securities
- Presenting a false claim to the government
- Concealment of assets
Ready to learn more? First, visit our FIRREA bank fraud whistleblower information page. If your information involves Bank Secrecy Act / anti-money laundering, we have information on that too.
Ready to see if you have a case? Contact us online, by email brian@mahanylaw.com or by phone 202-800-9791. Cases considered nationwide. All inquiries are protected by the attorney – client privilege and kept strictly confidential.
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