| Title: | DCU |
| Notice: | 1996 BoD Election results in 1004 |
| Moderator: | CPEEDY::BRADLEY |
| Created: | Sat Feb 07 1987 |
| Last Modified: | Fri Jun 06 1997 |
| Last Successful Update: | Fri Jun 06 1997 |
| Number of topics: | 1041 |
| Total number of notes: | 18759 |
[Permission to forward and re-post this note is granted.
Please be aware of the fact that many of the statements and
evaluations contained in this reply are my personal opinions and
evaluations based upon my examination of DCU financial reports and
conversations with DCU senior management.]
This is a summary of everything I have been able to find out about
the DCU participation loans. Much of this has been stated in
different topics, but there is some new information. Hopefully
pulling it all together will give DCU owners a clearer picture of
what was going on.
The participation loans were originated by Barnstable Credit Union.
They were brought to DCU by Mr. Mangone, DCU President. Mr. Mangone
founded the Barnstable Credit Union. According to the DCU Board
of Directors, Mr. Mangone was at one time a Director of Barnstable
Credit Union while he also served as President of DCU. DCU's Board
of Directors requested he relinquish his Directorship and he did.
I am not certain of when this all occurred. According to the DCU
Board of Directors, the loans were reviewed and approved by the
Board of Directors of both Digital Credit Union and Barnstable Credit
Union. The loans were not reviewed or approved by the senior
management of DCU, although they were aware of their existence.
A total of 16 participation loans were reviewed and approved by the
DCU Board of Directors from 1985 - 1990. Four of the loans have been
paid off. Twelve loans are now in default. DCU's participation in
these loans ranged from 50-90%. On average, DCU's participation
was 85%. The first default occurred in the fall of 1990.
The total amount of participation loans reached a peak of
$18,000,000 in 1990. DCU wrote off $2,696,000 of these loans in
1990. The land and property that secured these loans is currently
being re-evaluated. As the new evaluations come in, DCU will write
off against the bad loan allowance if the new evaluation is less
than the old evaluation. At the end of 1990, DCU held $6,693,000
(inflated price) in land and property that secured some of the loans.
I have new information concerning the terms of some of these loans.
The rates being charged for the loans was prime (Bank of Boston)
plus 2 percentage points. One point was also paid at closing. Of
the 12 loans now in default, 9 of them were 3 year loans with the
payment of interest only with a ballon payment at the end of the
term. Three of the loans were for a term of 15 years and the
payments included interest and principal.
The loan to value ratio of the loans ranged from 57% to 80%. Another
way of looking at this is the trust companies borrowing the money
put up between 20 and 43% on these loans. Current DCU loans of this
type to members require the borrower to put up 30%. In the past,
DCU has required as little as 20% to be put up by the borrower.
---------------------------------------------------------------------
Commentary:
I will quote various sections of the DCU Charter and Bylaws in the
following commentary. Please bear with me and read them since they
are very important.
Section 5 of the DCU Charter states:
"The field of membership shall be limited to those having the
following common bond:
Directors and the employees of the Digital Equipment Corporation
who work in the United States or Puerto Rico, or who are paid from
Maynard, Massachusetts, except foreign nationals at foreign
locations,; and, also included are spouses of persons who died
while in the field of membership of this credit union, employees
of this credit union, persons retired as pensioners or annuitants
from the above employment, members of their immediate families*,
organizations of such persons and Digital Equipment Corporation.
* any relative related by blood, marriage or adoption to a DEC or
DCU employee who is presently a credit union member."
The above section describes the people who may join DCU and who
can therefore borrow money from DCU. No where in the definition of
the field of membership is there any reference to trust companies.
The DCU Board of Directors reviewed and approved the loaning of our
money to real estate trust companies. They say these were "investments"
and not loans. Yet, all of the paperwork and accounting for them
calls them loans. They were included in the total amount loaned out
by DCU.
Now if we consider them to be "investments", what type of
"investments" were they? Were they conservative investments? In
no respect can these be called conservative "investments". Were they
risky "investments"? Judging from the higher interest rates being
paid by the borrowers, the answer would be yes. Many consider
this type of borrowing to be even more than risky, they consider it
to be speculative. Loans for the purchase of raw land have some of
the strictest loan requirements.
Now, does this all match the following statement by the Chairman
of the Board of Directors at the same time this was all happening?
'Q. How does DCU invest its money?'
'A. Because we view DCU as the guardian of members' savings we are
very conservative in our investment policies. We reinvest savings in
member loans. Additional investments are in government securities and
federally insured banks. We deal with the highest quality financial
institutions and don't invest in any sort of "speculative" instruments.'
Note: Quotes around the word speculative are in the original letter.
Source: DCU communication from Chairman of the Board, Mark Steinkrauss,
sent in the monthly statement. The exact date is unknown. One
paragraph reads "In 7 1/2 years we've grown from". Since formed
in 1980, this would date the letter to the mid-1987 time frame.
Another question is "Did these loans violate the spirit and intent of
the DCU Bylaws?". If these same trust companies had come to DCU
and requested $18 million, they would have been denied the loans
because they were not and could not be members of DCU. Yet, the mere
fact that Barnstable Credit Union originated the loans, somehow made
them legitimate. But DCU owned on average 85% of the risk. DCU was
the primary lender and risk taker. Not only did the fact that
Barnstable C.U. originated the loans seem to make them legitimate
loans for DCU to get involved with, it also appears to have absolved
DCU from performing any of the normal evaluation and verification that
it normally does before loaning money. So while DCU owned on average
85% of the risk of these loans ($18 million), none of the evaluation
and verification that would be done on a $10,000 car loan was
performed.
Article 19, Section 4 of the DCU Bylaws state:
"No director, committe member, officer, agent, or employee of
this credit union shall in any manner, directly or indirectly,
participate in the deliberation upon or the determination of any
question affecting his pecuniary interest or the pecuniary interest
of any corporation, partnership, or association (other than
this credit union) in which he is directly or indirectly interested.
..."
My question to the Board of Directors is "Did Mr. Mangone participate
in the Board of Director meetings where these loans were reviewed and
approved?" Since he "brought participation laons to the credit union"
he should have been considered to have an indirect interest in them
and been disqualified from the review and approval process. We will
need access to the minutes of the Board of Directors meetings to
determine this. These minutes are not available for our reading
according to the DCU Bylaws.
But, how could all of this have been happening without any member being
aware of it? Are we all blind? Should we have known about it?
But we were being told over and over that DCU has conservative
investment and loan policies. Why should we question what we were
being told? But we COULD have been aware of what was going on had
DCU published it's full annual reports, including auditor's notes,
from 1985 to 1990. Prior to 1985, these notes were included in the
annual reports. After 1984 the notes were no longer included with
the financial statements. These participation loans were very
evident in the auditor's notes from 1985-1990.
When I first asked for a copy of the full annual reports, I was
denied. The reason given was that they contained confidential
information. A day later, I was given permission to go into DCU
headquarters and read them, but was not allowed to take a copy of
them. One note out of 10 or 15 notes could even be considered to be
anywhere near confidential. I copied down significant information
from these notes and have made them public, all with DCU's knowledge.
I have since requested the Board of Directors to allowed DCU management
to give printed copies to any member requesting one. It has been
one week and there has been no response. I may just go back and hand
copy all of them. How important are they? A quote from the bottom
of Page 13 of the 1984 DCU Annual Report states:
"The accompanying notes are an integral part of these financial
statements."
'Q. Why was he [Richard Mangone] removed as president?'
'A. Richard Mangone was removed because he brought participation
loans to the credit union that are not performing. These
participation loans were with Barnstable Community Federal
Credit Union (BCCU). Over the past six years, DCU took various
positions, which ranged from fifty to ninety percent, in these
participation loans.'
'Q. Was Richard Mangone the only individual who reviewed these loans?'
'A. No. The participation loans were reviewed in various levels of
detail by two credit union boards, independent auditors and
federal regulators on an ongoing basis since 1985.'
Source: DCU communication from Chairman of the Board, Mark Steinkrauss,
dated July, 1, 1991.
The DCU's Board of Directors have fired Mr. Mangone for his
involvement in bringing the nonperforming loans to DCU. My
question to the DCU Board of Director's is "Where is your
accountability for reviewing and approving these loans?". If a DCU
loan officer had reviewed and approved loans that resulted in such a
loss to DCU, would they be fired? Who is to hold the Board of
Directors accountable for their part in this disaster? The answer
is that the Board of Directors is accountable to its owners, you
and I. They can choose to stay where they are until they either
choose to resign, or we, as owners may choose to remove them.
As a DCU member, and OWNER, we must all make a judgement concerning
this entire mess. I know I have.
Phil Gransewicz
| T.R | Title | User | Personal Name | Date | Lines |
|---|---|---|---|---|---|
| 278.1 | CLT::OVER::JACKSON | Collis Jackson ZKO2-3L06 | Fri Sep 06 1991 15:17 | 1 | |
Good job of research, Phil. | |||||
| 278.2 | bye! | DENVER::DAVISGB | Can't come outta the booth | Fri Sep 06 1991 18:19 | 14 |
Thanks again for the research Phil.
I, also, know that I have made my own decision regarding this whole
mess. Of course, DCU is so big, and apparently so insensitive, that
they probably won't notice that they aren't receiving my paycheck
anymore...
As I've said in previous memos....I'm now using a local credit union
that has saturday hours, drive up, no fees for checking, and no history
of loans to non-members.
Like Emmy Lou Harris said...
C'est La vie say the old folks....it goes to show you never can tell!
| |||||
| 278.3 | More info from last "informal discussion" | GUFFAW::GRANSEWICZ | Someday, DCU will be a credit union. | Mon Sep 16 1991 16:36 | 35 |
A few additional questions were answered at the last BoD "informal"
discussion:
Q. When the first sign of trouble appear with the participation loans?
A. The first default occurred in July or August of 1990.
Q. When was the first property repossessed?
A. In the fall of 1990, somewhere around October 1990.
Q. What actions did the BoD take after the first default?
A. Reviewed the loans month to month. Increased reserves. Had Mangone
and another appraiser look at property.
Q. How was Mangone involved in the review and approval process of the
participation loans?
A. He was present in the meetings when the loans were reviewed and
approved.
Other note:
1. "Considerable" expenses are being charged to DCU operating expenses
for attorney fees, appraisals and "real estate workout artists" (guess
these are people that are trying to sell the property).
| |||||
| 278.4 | Cape Cod Times, June 8, 1991 | GUFFAW::GRANSEWICZ | Someday, DCU will be a credit union. | Wed Sep 18 1991 18:45 | 228 |
[Permission to forward and re-post this note granted.]
[Reprinted without permission from the Cape Cod Times dated
June 8, 1991.]
"Credit union affair widens"
"Lawsuit cites Cape loans"
By Susan Milton
Staff Writer
HYANNIS- A Barnstable credit union scandal has spread to the
Digital Employees Federal Credit Union, which is now suing its former
president over $18 million in bad real estate loans, primarily on
Cape Cod.
The civil suit claims that former president Richard M. Mangone of
Norwell generated the loans while also an officer and investment
adviser at the Barnstable Credit Union in Hyannis.
But it was his employer, the Digital credit union, that bought 75
to 90 percent of the participation loans and stands to lose more
than $10 million, plus costs, the suit says. Participation loans
are shared by more than one lender.
The total value of the loans, all in default, amounts to 5 percent
of the credit union's $371 million in assets. The credit union's
members are employees of the Digital Equipment Corp., a separate
corporate entity. Digital is major computer manufacturer based in
Maynard.
"Mangone played a central and pivotal role in the origination,
administration, and management of these loans, which involved
extensive fraud and other acts of wrongdoing," the suit says.
With "straws"- stand-in borrowers- fake income tax returns and
financial statements and grossly inflated real estate appraisals,
Mangone shepherded loans through the Digital credit union's board
of directors,the suit states.
In one case the board never approved the loan, yet $3 million was
transferred at Mangone's order to the Barnstable credit union and
paid to unknown parties, the suit states.
Mangone is charged with fraud and deceit, gross negligence, breach
of contract and unlawful use of Digital credit union funds. The
suit also seeks to attach $157,000 in Mangone's account at the
credit union.
The suit also names three "John Does", unidentified people who also
"participated in and were the recipients of certain fraudulently
obtained loan proceeds at issue", the suit states.
The suit claims to describe in detail how credit union insiders
financed millions of dollars worth of real estate speculation through
the two credit unions in the late 1980's.
Such speculation also was described in March in a Cape Cod Times
series about how deeds and mortgages for subdivisions and lots moved
among credit union officials, relatives, business associates,
secretaries, and subcontractors. The paper trail concealed inflated
property values and debt from lenders and regulators.
In the Digital suit, the 12 participation loans showed ties to
James K. Smith and Mangone, both credit union founders and business
partners, and their former partner Ambrose Devaney. Smith is a
Barnstable developer. Devaney is a developer from Rockport.
For example, the loans bear the names of Charles Ryan, a construction
supervisor for Smith; Devaney; John Schulenberg of Barnstable,
Smith's brother-in-law, Jeffrey Shaw of Centerville, a masonry
contractor for Smith; Robert Churchill of Yarmouth, Smith's real
estate associate, among other unknown real estate trustees.
Similar transactions led to the Barnstable credit union's takeover
March 20th by federal regulators for illegal business loans to a
select group of borrowers.
Those activities are under investigation by the FBI, the U.S.
Attorney's office, criminal and civil attorneys for private parties.
Judging from the detail in Digital's court suit, some of the "straws"
or trustees who held property for credit union insiders are now
talking to those investigators.
Due to his involvement in the Barnstable credit union, Mangone was
fired April 5th by the Digital credit union.
A related foreclosure action last November, brought by Berkshire
County Savings Bank, named real estate trustees Robert Cohen, then
attorney for the two credit unions; Barnstable town councilor
Michael O'Niel, also a Hyannis lawyer; John Kenney, O'Niel's law
associate; Steven Jones, Smith's brother-in-law and Hyannis lawyer;
and Malden lawyer Richard Murphy, then a Digital Lawyer.
The Digital credit union suit was filed May 23 in Brockton Superior
Court in Plymouth County by Charles B. Janes and Marcy J. Levine,
of Bingham, Dana, and Gould of Boston.
Since 1987, Barnstable credit union officials and Mangone have
repeatedly denied publicly that the Digital credit union was
participating in such loans.
"We're not... a participatory lender;... we do not buy loans." said
Mangone in early February, speaking as the Digital credit union
president.
He also pooh-poohed any questions about the health of the Barnstable
credit union's loan portfolio and said, "You're in a long line
of 20 examinations by professionals a lot sharper than you and I.
We've never had any problems with any of these values. Other
participating banks also got involved and looked at these properties.
We're just not selling a pig in a poke."
Digital's suit allegedly describes how Mangone and others, as yet
unnamed, were able to sell a pig in a poke to the boards of the
two credit unions, the federal regulators, and private auditors.
In April 1990, Smith asked Charles Ryan to be trustee of Mazel II
Realty Trust, the suit states. Ryan was employed as a construction
supervisor by Centerville Builders Inc., believed to be owned by
Smith, according to the suit.
Smith said he wanted to get a $1.5 million loan to buy Asher's
Heights, a 67 lot subdivision at Asher's Path and Route 28 in Mashpee.
Supporting documentation for the loan included an appraisal report
that put the subdivision's value at $5.2 million, or $78,000 a lot
as of June 14. Less than a year later, its current value is about
$15,000 a lot, the suit states.
The property's deed lists a price of $1.4 million. That is $2.71
million less than the $4.15 million participation loan issued by
Digital credit union.
The documents showed his net worth as $8.86 million as of
December 31, 1989, when in fact, Ryan has never possessed a fraction
of that.
Mangone didn't even take that $4.4 million loan to the Digital
credit union's board. It was the largest participation loan in
the credit union's history at a time when the Cape Cod real estate
market was depressed.
Instead he instructed a Digital employee to transfer almost
$3 million, Digital's share, to the Barnstable credit union. At
least 75 percent was given out in a single transaction to unknown
parties.
Building still hasn't started in the Mashpee subdivision and the
loan is in default.
=====================================================================
"Properties Cited in credit union suit"
Listed are the property, the total loaned, the real estate trustee,
the trustee's relationship to Barnstable Community Federal Credit
Union insiders, mortgage amount and year. The information is from
court and registry records.
Panorama Motor Lodge, Bourne
High View Realty Trust
Ambrose, Devaney, Mangone and Smith's partner
Mortgage: $1.75 million, 1987
Capewind Motor Lodge, Teaticket
Perch Pond Realty Trust
Devaney; Smith claims 1/3 interest
$2.45 million, 1987
Winslow Farms
Mashpee subdivision
Santuit Woods Realty Trust
trustee John Schulenberg, Smith's brother-in-law
$2.95 million, 1987
Yankee Village
41-lot Brewster commercial/residential subdivision
Signal Hill Realty Trust
trustee John Schulenberg, Smith's brother-in-law
$1.7 million, 1987
and
Yankee Village Realty Trust
trustee Jeffrey Shaw, masonry contractor for Smith
$1.25 million, 1989
Barnstable News Store building, Barnstable
Barnstable News Store Trust
trustee Richard Murphy; Smith claims half interest
$1.65 million, 1990
Asher's Heights, Mashpee
67-lot subdivision
Mazel II Realty Trust
trustee Charles Ryan, Smith construction supervisor
$4.14 million, 1990
unknown property, Plymouth County
Second Green Island Trust
trustee John J. Maffei, unknown relation
$2.15 million, 1987
Hanover property, Plymouth County
Curtis Village Realty Trust II
trustee Robert Churchill, Smith business associate
$2.4 million, 1988
unknown property
Plainfield Development Realty Trust
trustee unknown
$1.52 million, 1988
unknown property
Walcott Realty Trust
trustee unknown
$2.5 million, 1988
Dartmouth subdivision
Interstate Realty Trust
trustee Stephen J. Mullen, Hanover;
unknown relation
$3.55 million, 1989
=====================================================================
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| 278.5 | Very interesting now that we know more | GUFFAW::GRANSEWICZ | Someday, DCU will be a credit union. | Wed Sep 18 1991 19:27 | 92 |
> The civil suit claims that former president Richard M. Mangone of
> Norwell generated the loans while also an officer and investment
> adviser at the Barnstable Credit Union in Hyannis.
We have been told several times that Mangone severed his official
ties to Barnstable when he brought these loans to DCU. According to
the BoD, Mangone was present during the review and approval of these
"investments". The DCU Bylaws prohibit this in Article 19, Section 4.
> Mangone shepherded loans through the Digital credit union's board
> of directors,the suit states.
If DCU Bylaw 19, Section 4 had been enforced, this would not have been
the case.
> In one case the board never approved the loan, yet $3 million was
> transferred at Mangone's order to the Barnstable credit union and
> paid to unknown parties, the suit states.
Well, this looks like the answer to my question at the last informal
discussion. The DCU lawyer didn't want to answer it even though it is
a matter of public record.
> The suit claims to describe in detail how credit union insiders
> financed millions of dollars worth of real estate speculation through
> the two credit unions in the late 1980's.
Hmmm, did DCU actually use "real estate speculation" in their suit?
Glad to know we have using the correct terminology.
> Such speculation also was described in March in a Cape Cod Times
> series about how deeds and mortgages for subdivisions and lots moved
> among credit union officials, relatives, business associates,
> secretaries, and subcontractors. The paper trail concealed inflated
> property values and debt from lenders and regulators.
In March?? Wonder if DCU was ever contacted regarding the contents of
this article? I hear the Cape is nice this time of year.
> Due to his involvement in the Barnstable credit union, Mangone was
> fired April 5th by the Digital credit union.
Which involvement was he fired for? Seems he's had a fairly ongoing
involvement with them. But we all know he was fired for bringing the
non-performing loans to DCU. Yes, it was all his fault.
> The Digital credit union suit was filed May 23 in Brockton Superior
> Court in Plymouth County by Charles B. Janes and Marcy J. Levine,
> of Bingham, Dana, and Gould of Boston.
Hear Plymouth County is a nice place to visit this time of year... ;-)
> Since 1987, Barnstable credit union officials and Mangone have
> repeatedly denied publicly that the Digital credit union was
> participating in such loans.
Can we add the DCU BoD to this list based on their statement sent out
in 1987?
> "We're not... a participatory lender;... we do not buy loans." said
> Mangone in early February, speaking as the Digital credit union
> president.
Wonder where and when he said this? Wonder why he didn't want this to
be known?
> Digital's suit allegedly describes how Mangone and others, as yet
> unnamed, were able to sell a pig in a poke to the boards of the
> two credit unions, the federal regulators, and private auditors.
Gotta love the pig in a poke analogy! :-) Heck, if everybody knew
DCU wasn't independently verifying documentation on million dollar loans,
we'd be waiting in line to recieve our deposits from the agency that
insures DCU deposits. Guess we're lucky we only lost x million.
> The property's deed lists a price of $1.4 million. That is $2.71
> million less than the $4.15 million participation loan issued by
> Digital credit union.
All it would have taken was for somebody to read the deed and do some
subtraction to see DCU got taken for $2.71 million?
> Mangone didn't even take that $4.4 million loan to the Digital
> credit union's board. It was the largest participation loan in
> the credit union's history at a time when the Cape Cod real estate
> market was depressed.
Depressed is putting it mildly. The property list shows these loans
being made into 1990 which is when the first default occurred.
| |||||
| 278.6 | SMARTT::MACNEAL | ruck `n' roll | Thu Sep 19 1991 10:32 | 3 | |
Sounds like the DCU BoD wasn't the only ones duped in this whole mess.
Mangone successfully eluded federal officials and officials from 2 CUs
during this time.
| |||||
| 278.7 | GUFFAW::GRANSEWICZ | Someday, DCU will be a credit union. | Thu Sep 19 1991 15:43 | 52 | |
RE: .6
>Sounds like the DCU BoD wasn't the only ones duped in this whole mess.
Maybe not. But they were the ones "duped" for the most money on these
loans. Our money. Our money that was entrusted to THEM. Our money
that they "invested" in real estate speculation or our money that they
LOANED to non-DCU members. And what care and diligence did they use in
caring for our money??? Open up the minutes of the BoD meetings and we
will ALL know.
If the BoD had realized that they were the Directors of a credit union
and not a bank then we wouldn't be having this discussion. Instead
they chose to act as a bank and make commercial loans. We need less
"dupable" Directors and people that understand why a credit union
exists in the first place. Without this philosophy, this will happen
again somewhere down the road. We need Directors that don't
rationalize loans into investments, fees into choices, services into
blender insurance.
>Mangone successfully eluded federal officials and officials from 2 CUs
>during this time.
He didn't elude anybody on the other CU because he was intimately
involved with the other credit union. He attended WEEKLY meetings at
Barnstable Credit Union, including BoD meetings there! He served on
the BoD of Barnstable until 1987 and acted as an advisor almost up
until they were closed down. How could our BoD be oblivious to such
goings on? Didn't they ever check ANYTHING? Believing somebody
blindly is to relinquish their fiduciary responsibilities to the
Digital Credit Union IMO. I want Directors that are also accountable.
They accpeted all the glory when DCU grew. Let them step forward and
accept responsibility when they are involved in the biggest credit
union scandal in the country.
And it is not the duty of federal agencies and auditors to audit for
fraud as a noraml course of business. What they do check for is that the
proper controls are in place to prevent it. In this case, one of those
VERY IMPORTANT controls was disregarded. Namely, allowing Mangone to
participate in the review and approval process of these "investments".
"Investments" which I would like to remind you, the BoD stated they
were not involved in. They gave a list of what they "invest" in. Cape
Cod real estate speculation was NOT one of them.
P.S. You still haven't answered what YOU think these were:
A. Investments in real estate trust companies
B. Investments in Cape Cod real estate
C. Loans to real estate trust companies
Are there any other choices???
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