| T.R | Title | User | Personal
Name | Date | Lines |
|---|
| 350.1 | An open letter to DCU members | TOMK::KRUPINSKI | DCU Special Meeting: 12-Nov-1991 | Wed Nov 06 1991 20:14 | 61 |
| [Permission is hereby granted to forward this message to any DCU member,
by any means, provided my name and original header are retained]
Dear DCU Member,
On November 12, 1991, at 7:30 p.m. at the Sheraton Tara Hotel, located
at 1657 Worcester Road (Rt. 9) in Framingham, MA, there will be a special
meeting of the membership of the Digital Credit Union (DCU). Three
items will be discussed, each of which will have an important impact upon
the future of the DCU. You are probably aware that there is to be a meeting,
since you should have already received a notice about the Special meeting
some weeks ago. A message similar to this has been circulating soliciting
support for the current DCU Board of Directors. This message simply
asks you to attend the meeting, and do so with an open mind.
You may be interested to know how it was that this meeting came to
pass. The Board of Directors of the DCU allege that this meeting is
the culmination of a "witchhunt", a small group intent upon discrediting
the directors and the credit union. Please allow me to state my own
experiences as an ordinary shareholder.
A few months ago, when I received the now infamous "choices" brochure,
I was very angry at what the DCU had done. I had occasionally followed
the DCU VAXconference, so I decided to look there to see what other people
thought. I found that many, many members had reactions similar to the
reaction that I had. And then, weekly, it seemed, new revelations of
questionable practices were brought to light. While it did not appear
that any wrongdoing had occurred, clearly the leadership of the DCU was
moving in a direction different than that of the membership. Attempts to
communicate with the Board of Directors, those members that we, as members,
had elected to serve our interest, proved to be fruitless. One person took
some initiative and made some inquiries. He found that it was within the
power of the members to reclaim the direction and spirit of our Credit Union.
Within days over 1200 signatures were obtained, requesting the special
meeting. These petitions were collected by plain folks like myself, who
simply didn't like the way the credit union was headed, and wanted to do
something positive to correct it.
Those of us who collected petitions, and, I am sure, those who signed it,
certainly do not relish the idea of having the Board removed. One of the
reasons I signed the petition and put my efforts behind it were because
the petition called for elections as soon as possible. There are certainly
many people who belong to the DCU who are capable and willing to take on
the responsibility of serving our trust as members. Lively discussion
of the issues at hand are in the VAXconference BEIRUT::DCU. You might
consider taking a look at it.
Most people don't like to attend meetings such as this one, and I'd
certainly rather be doing something else myself Tuesday night. But this is
important. The DCU needs your help. If you question, as I do, the current
direction of the DCU as perhaps not serving the needs of the membership, please
consider attending. Listen to the facts. Then support the DCU and your fellow
members by voting on the questions as your conscience dictates. I'm not
asking you to drag your spouse or your teenage children along, or to support
any particular point of view. Just come and listen. Ask some questions. Vote
the way you think is right. If you'd like some more information, let me know.
I'd be happy to share with you any information, from both sides, that I have.
Regards,
Tom Krupinski
|
| 350.2 | Open letter to the DCU membership | SMAUG::GARROD | An Englishman's mind works best when it is almost too late | Thu Nov 07 1991 08:29 | 853 |
|
[This is an open letter to the DCU membership from DCU member Dave
Garrod. Permission is hereby granted to forward this message to
any DCU member, by any means, provided my name and original header
are retained]
Dear DCU Member,
On November 12, 1991, at 7:30 p.m. at the Sheraton Tara Hotel,
located at 1657 Worcester Road (Rt. 9) in Framingham, MA, there
will be a special meeting of the membership of the Digital Credit
Union (DCU). The most important item to be discussed and voted
upon is a motion to remove the complete DCU board of directors.
If this motion is carried subsequent to the special meeting new
elections will be held by DCU that follow the normal process to
elect all seven members of the board of directors. The current
board members will have the same rights to participate in that
open election process as any other DCU member.
As defined in the DCU Bylaws the special meeting was called
through the signing of a petition by over 1200 DCU members who
believed all was not right with the way their credit union was
being run.
The DCU Board of Directors has demonstrated and continues to
demonstrate patterns of poor decision making and of poor
communication with shareholders. The following is a brief
synopsis of this assertion which was felt to be sufficient
justification for the agenda items of the special meeting
scheduled for November 12, 1991:
1. Questionable Appropriateness of Participation Loans
The Board approved $18 million over the past several years in
what are now deemed non-performing "participation loans" to
outside interests. It is my belief and that of many others
that the Board may have had cause for suspecting the validity
of these loans, sufficient to justify reasonable efforts
(which were not taken) to verify documentation now alleged to
be fraudulent.
2. Misinformation Regarding Participation Loans
It is my belief and that of many others that in statements the
board made to members in 1987 and in the 1990 annual report
they were not presenting true and accurate financial
information to the members regarding investments in risky
participation loans, and losses that were being suffered from
them.
3. Questionable Institution of Checking Account Charges
The Board attempted to introduce new checking account changes
with higher fees in August of 1991 in a manner that appeared
to me to be intentionally misleading and unjustified.
1
4. Denial of Business Related Information
During 1991, the Board denied access of shareholders to such
information as auditor's notes, meeting minutes and so forth
pertaining to Board operations and elections. Since 1985
annual reports have been published without notes or the
auditors endorsements. It is my belief that this was done
because it was the auditors notes that contained details of
the participation loans. No public statement by the Board of
Directors even recognized the fact that the DCU invested in
participation loans. I believe that the shareholders of DCU
are entitled to accurate and timely information regarding
their institution.
Since the Special Meeting was successfully petitioned, the Board
has continued to exhibit this pattern of poor decision making and
poor communications, as follows:
1. New Information Restriction Policy
In September of 1991, the Board introduced new restrictions
and fees for shareholders seeking access to such documents as
bylaws, official statement of DCU policy and so forth.
2. Repression of Special Meeting Announcement
Shortly after the mailing of the special meeting announcement
and prior to the holding of the special meeting, the Board
would not permit further significant announcement of the
special meeting. In particular notices were not posted in DCU
branches even after members requested that they should be. I
would have expected the DCU to have wanted to remind as many
members as possible about such a significant event.
2
You probably have many questions relating to the background behind
why so many people were willing to call for the special meeting.
I will address what I consider to be the most important questions
in a question and answer format:
Q: What exactly are participation loans?
A: Participation loans are loans that are made by institution A and
then bought/participated in by one or more other institutions. In
the DCU case Barnstable Credit Union made loans to commercial real
estate developers on Cape Cod. The DCU bought into these loans.
Q: When did the DCU first start participating in these loans?
A: In 1985 Richard Mangone who was a major player at Barnstable
Credit Union and the president of DCU interested the DCU board of
directors in participation loans. The DCU board of directors
approved the taking of very heavy position in these participation
loans. DCU bought 70-80% shares in these loans and thus assumed
the major part of the risk in these loans. DCU continued to
participate in these loans until 1991. Defaults first appeared on
these loans in the summer of 1990.
Q: Why are participation loans deemed very risky?
Participation loans are risky because the holding institution has
to deal through a third party institution. An institution's own
loans go through its own loan committee and full credit checks etc
can be done on the loan participant. In the case of participation
loans the originating institution is primarily responsible for
verifying that the loan is bone-fide and properly secured. More
effort is required to check up on the soundness of participation
loans. The DCU board chose to accept the paperwork from
Barnstable Credit Union as is with no verification by its loan
committee. One asks why the board didn't at least do as much
checking on these participation loans as the credit union would
have done on a loan to member. Remember the amount being
loaned/invested was enormous and DCU was knowingly taking the
majority interest in the loans.
Q: Were these "participation loans" loans or investments? Why is the
distinction important?
In the last few months at two informal meetings with the DCU Board
of Directors members asked the Board whether these participation
loans were loans or investments. The Board strenuously maintains
that they are investments. There is a good reason behind this.
The DCU bylaws rightly only permit the credit union to make loans
to its members, that's why it is a credit union and not a bank.
3
The thing is that participation loans behave exactly like loans,
especially when one institution, the DCU, holds the lions share of
any one loan. If the board admitted that these look like loans,
smell like loans and quack like loans and therefore in spirit were
loans it would be admitting that it willfully ignored the bylaws
of the credit union. The board made the point that they were
actually investments because DCU did not originate the loans. If
you look at this literally and very narrowly one is forced to
agree. But the issue remains that they effectively made loans to
non-members. The whole essence of a credit union is that loans
are only made to members.
Now here is the interesting part. These "investments" behave so
much like loans that they have been carried on all DCU statements
of conditions up to and including June 1991 as "LOANS TO MEMBERS".
No investments are listed on the asset side of the statement. In
the 1990 annual report released to members they are hidden in the
line termed simply "LOANS". In addition on the monthly DCU
statements of conditions there is a little section that lists
information on "LOANS OUTSTANDING" and their degree of
delinquency. Interestingly enough the defaults on these
participation loans (sorry I meant investments!) appear here. Eg
in August 1991 the DCU had $8.098 million of delinquent loans of
age 2 - 6 months. The overwhelming majority of these
delinquencies were on the participation loans. But I thought the
board said they were investments. Oh well I guess the answer
depends on what is most convenient to say at the time.
Back to the 1990 annual report, it is only in the notes to the
annual report that you can see that these participation loans
exist. These notes were not published and were only made
available by a DCU member (Phil Gransewicz) personally going to
DCU headquarters on his vacation time to be shown the notes. He
was not even allowed to photocopy them, he had to transcribe them
by hand. Have you ever heard before of a shareholder being denied
full access to complete financial statements?
As I'm sure you are aware on all annual reports that you read
there is the statement "these notes are an integral part of the
annual report". In fact in DCU's very own 1984 annual report the
following statement was included:
"The accompanying notes are an integral part of these financial
statements."
In DCU's annual report the embarrassing notes had been excised
along with the external auditors endorsement (the endorsement
would not have been valid without the notes). Attached to this
letter are transcripts of these notes.
Contrast the information contained in the notes with some of the
statements made in the 1990 annual report. But first it is
important to note that DCU's net income for 1990 dropped 87% from
what it was in 1989. In 1989 net income was $3.331 million in
1990 it was $0.29 million.
4
[The following comes from the DCU 1990 annual report distributed
to members, my comments are enclosed in []. It is important to
note that Mark Steinkrauss is chairman of the board of directors
and Susan Shapiro is a board member professing extensive banking
experience as well as being the DCU treasurer.]
"We will continue our prudent lending and investment practices so
that our members' investments remain safe and sound." (M.
Steinkrauss, Chairman)
[Remember this was written at the time when the board had approved
$4.406 million for a provision for loan losses including an actual
$2.696 million write off on the bad participation loans. I would
hate to think what continuing with their 'prudent lending and
investment practices' would lead to.]
"Finally, as we progress through 1991, we will continue to focus
on the security of funds while providing our members with the best
possible service." (M. Steinkrauss, Chairman)
[A bit late to do that, the board should have been more concerned
with security of funds when it agreed to enter into the risky
participation loans.]
"As the industry reported unprecedented losses, DCU's financial
performance improved with Net Income for 1990, on target at .8% or
$.3 million. We maintain a conservation cash position and invest
in only the highest quality money-market investments." (S.
Shapiro, Treasurer)
[This statement takes the cake. This is an out and out lie. Even
the annual report distributed to members clearly spells out with a
line item entitled "Net income" that net income decreased from
$3.331 million in 1989 to $0.290 million in 1990. This statement
is deception of the membership of the highest degree. At the
first informal meeting with the board Susan was questioned about
this statement. She gave no clear explanation and just seemed
exceptionally angry that a fellow owner of the DCU had asked that
question.]
"Most of our earnings were placed in reserves as we anticipate
continued pressure on the real estate market, especially in New
England." (S. Shapiro, Treasurer)
[One's immediate question is "Reserves for what?". Well of course
we were not told, that information was buried in the notes which
were 'conveniently' excised from the annual report. Another
exercise in deception.]
5
Q: How much did DCU invest in these participation loans?
At the peak DCU had over $18 million outstanding in participation
loans to Barnstable Credit Union on the summer/fall of 1990
Q: What exactly did Mark Steinkrauss say in 1987?
In 1987 Mark Steinkrauss as Chairman of the Board of Directors
made the following written statement in a mailing to all DCU
members:
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.)
There is absolutely no mention of the approximately $9 million
participation loans that DCU then had outstanding in Barnstable
Credit Union. Nor is Barnstable Credit Union a federally insured
bank. The participation loans outstanding are not covered by any
clause of this statement and in fact are specifically excluded.
In the banking industry it is a recognized fact that participation
loans are somewhat speculative in nature. One has to ask why the
chairman of the board of directors thought it necessary to out and
out lie to the membership.
As an aside a fellow Digital employee I know had his father (a
senior banker) call DCU in 1988, to get information on the
institution, when he was considering doing business with DCU and
DCU was specifically asked if it took part in participation loans.
The answer was a resounding NO.
6
Q: What did Susan Shapiro say in the 1990 annual report?
This information has already been given in answer to one of the
questions above. But it is so indicative of the general board's
attitude towards the membership that it bears repeating.
"As the industry reported unprecedented losses, DCU's financial
performance improved with Net Income for 1990, on target at .8% or
$.3 million. We maintain a conservation cash position and invest
in only the highest quality money-market investments." (S.
Shapiro, Treasurer)
[This statement takes the cake. This is an out and out lie. Even
the annual report distributed to members clearly spells out with a
line item entitled "Net income" that net income decreased from
$3.331 million in 1989 to $0.290 million in 1990. This statement
is deception of the membership of the highest degree.]
Q: Why is everyone so upset with the Board of Directors I thought it
was Richard Mangone, the former president, that had committed
fraud against the DCU? What did the directors do wrong?
A: Indeed it is true that Richard Mangone committed serious fraud
against the DCU. It was Richard Mangone that presented the board
with fraudulent papers on the participation loans and backed them
up with other fraudulent documentation.
But the board has a responsibility to safeguard the interests of
the credit unions members. The board had put next to no checks
and balances in place to ensure that one fraudulent person
couldn't milk the DCU. A Credit Union of that size should have
had an internal auditor, it didn't have one. The credit union did
have a supervisory committee which was meant to ensure that there
was some level of independent review of decisions made by the
president and directors. But unfortunately to say the supervisory
committee had been dormant for years. Some say it hadn't met
since the early 80s.
Indicative of the lack of checks and balances is the fact that Mr.
Mangone simply instructed a DCU employee in June of 1990 to
transfer $3,523,915 to Barnstable Credit Union. This fact went
undetected or unacted upon by the BoD until they filed a civil
suit against Mr. Mangone in April 1991. A good question is "How
could the largest loan transfer in DCU's history have been made
without the proper authorizations." This indicates a complete lack
of checks and balances in the system the BoD had set up to
"invest" in these loans.
It is very important to note that the only director/employee of
DCU being accused of criminal activity is Richard Mangone. The
board claims people have accused them of fraud. That is
incorrect. What people have accused them of is mismanagement and
not exercising due care. The facts above tell us that the BoD was
either asleep at the wheel or failed to act appropriately given
7
the significant amount of DCU money involved. Given this past
history, we question whether we can honestly trust these same
people to continue on the Board of the credit union that DCU
members entrust with their money. The BoD's actions subsequent to
all this has been one of stonewalling, denial of responsibility,
and non-disclosure of data. Their actions have contributed to a
general lack of trust on the part of many members.
Q: When exactly did the Board of Directors first know that there were
potential major problems with the participation loans?
A: This is a difficult question to answer. When first asked the
board said the first indication of trouble it had was when
Barnstable Credit Union was shut down by the NCUA and Richard
Mangone was associated with the Barnstable Credit Union. Further
digging by Phil Gransewicz a DCU member uncovered the fact that
the DCU were notified of a suit against Richard Mangone on 25th
October 1990. In addition defaults were taking place on some of
the participation loans at that time. The board of directors then
admitted to knowing about problems back then but to this day Mark
Steinkrauss strenuously denies any prior knowledge. I have no
solid evidence that this is anything but the truth but it is known
that the board made Richard Mangone resign as an officer of
Barnstable Credit Union in 1987 due to conflict of interest. One
also has to question the timing of the statement by Mark
Steinkrauss to members in 1987 strenuously voicing the 'fact' that
DCU did not invest in 'any sort of "speculative" instrument'.
There could be many reasons, one is left to speculate!
Q: How much has the DCU actually lost due to these participation
loans?
A: An exact calculation can not be given. One of the main reasons
for this is DCU's new information protection policy which prevents
members from obtaining key information. But here is what we have
pieced together. It is fact that $4.406 million provision for
loan losses was made in 1990. Of which $2.696 million was
actually used to write off bad loans. The rest of the provision
was used throughout 1991 and more was added to the provision. DCU
received payment on a $6 million bond on its former president
Richard Mangone. Looking at the statements of condition for all
the months through 1991 in particular looking at the changes in
total equity and taking into account the receipt of the $6 million
it appears that DCU has so far (until the end of September)
written off about $9 million (it would have been $15 million had
it not received the bond money). There may be more to come. DCU
has a suit against Mangone for $10 million which more or less ties
with our calculated $9 million. So using nice round figures it
looks like DCU has taken a bath for $10 million of our money.
8
Q: What's this business I hear about missing pieces of the annual
reports? Why is that important anyway?
A: As far as we can ascertain no annual report at all was published
in 1985. Since then notes have been excluded. Notes are an
integral part of annual reports. Isn't it funny how the
interesting parts of the annual report stopped being published
right at the same time as the participating loans were entered
into? Maybe somebody figured out that the membership wouldn't be
too pleased if only it knew.
Q: What checks and balances should the DCU Board of Directors have
had in place to prevent the fraud?
A: As far as we can ascertain next to none. Some checks and balances
are now being put into effect. But this is more due to the new
president Chuck Cockburn than anything the board has done.
Incidentally I have to put in at least one good statement in favor
of the board. About the only good thing I can see that the board
has done is make a good choice for a new president. I salute them
on that achievement. Now they should get out of the way in favor
of directors who better understand the membership's wishes and
actually advocate free and open communication.
Q: Do you have any comments on the black "Choices" brochure?
A: Do you? Seriously though. I was personally insulted by that
brochure. Fancy trying to disguise new checking account fees in a
way that presented them as more choices for the membership. This
made a lot of people's blood boil. I thought at first it must
have been an aberration. But when I actually got to hear members
of the board speak (not all I must admit, but to date the board
has always spoken as one) I realized that this was just totally in
character for the boards utter contempt for the intelligence of
the membership.
9
Q: Can you give any examples illustrating the contemptuous way that
the DCU board of directors have treated members?
A: I certainly can. The following are quotes from a memo that Susan
Shapiro wrote on behalf of the whole board on October 29th 1991.
This memo was intended for readership by the DCU membership. The
complete text of this memo can be found in the BEIRUT::DCU
notesfile note 343.0 My comments are enclosed by []
"In summary, a small group of members have conducted what
would seem to be a "witchhunt" with the intent to
discredit the board of directors and the credit union.
Their efforts have culminated in a petition to remove the
present board."
[There has been no witchhunt. A number of very concerned members
have been investigating what has happened to the DCU over the last
few years. The board has continually frustrated our efforts to
get at information we consider essential to understand whether
there are any other skeletons in the closet. I went into this
process hoping that I would be able to support the board. As time
has gone by I have become more and more convinced that the board
are part of the problem, not part of the solution.]
"If the entire board is removed, there is a substantial
risk that a newly elected board would have NO experience
in management, finance, or understanding of the credit
union operations. It is, therefore, extremely important
that members attend the Special Meeting and show support
for DCU's current board of directors."
[This is a classic case of the board forgetting that they are
there to represent US the owners/members of DCU. This comes
across as very condescending towards the membership. I ask, if
the current board is so smart how come they just presided over the
loss of $10 million? There are many extremely intelligent people
throughout the DCU membership, the board certainly does not have a
monopoly on relevant experience. In addition with the correct
checks and balances in place it is the professional paid employees
of DCU from the president on down who need the detailed
operational knowledge. The board's main function is to represent
the membership and set strategic goals and very high level policy.
The above sounds like it comes from a group that genuinely believe
they are irreplaceable. I hate to burst their balloon but the
truth is nobody is irreplaceable.]
10
Q: Why should I care that the DCU has lost money through this fraud,
aren't all my deposits insured up to $100,000?
A: Indeed all deposits are insured up to $100,000. Thus your
principal is pretty safe. The issue though is that you have lost
out on equity or DCU earnings that could have been passed back to
you as a owner had DCU not lost the money. Also had DCU not been
in such good financial shape the bad loans could have made it
insolvent. You've all heard about the S & L crisis. We were very
lucky DCU wasn't part of it. As it is DCU had a high in equity of
$18.6 million in November 1990. $10 million of that equity has
been blown away. At the end of September 1991 the equity in DCU
was $13.9 million. Why was it not $8.6 million (assuming a $10
million loss) you ask? The reason is the operational profits DCU
is making. In 1990 alone it made over $4 million of operational
profit and in 1991 appeared to be making at least $150,000 per
month. This profit is coming at the expense of decent interest
rates on our savings and money market accounts. That's why so
many other institutions offer a better deal. Because of the
enormous loss on the participation loans DCU has to build up its
equity position again. DCU only has an equity/asset ratio of
3.7%. The NCUA would like to see around 7 or 8%. It will be a
long time before we see any extraordinary dividends passed around
like we were used to in the early 80s.
The only way to build up the equity base is through profits. Poor
interest rates did that in 1990. In August 1991 there was an
attempt to impose fees to gather even more profits. This was
misrepresented as necessary because of the inability to make
enough member loans. That was absolute baloney, the real reason
was to try and recover from the losses on the participation loans.
Unfortunately for the board of directors of DCU the membership
noticed this blatant attempt at hoodwinking and called their
bluff. I'm pleased to say that the new president (Chuck Cockburn)
reversed the board's decision so that he could work on a more
strategic plan for the DCU. I wish him every success in that, we
can help him by giving him a board that better understands the
wishes of the DCU membership.
Q: Exactly how much has this whole episode cost me personally?
A: The answer to this assumes that the total loss is $10 million.
That is equivalent to $114 for each of the 88,000 members. Or
another way of looking at this is that you've suffered a loss of
$30 for each $1000 you have deposited in DCU in savings accounts,
checking accounts, CDs etc. Of course if you look at your
statements you won't find this amount missing. What this amount
is is money that could have been given to you, an owner of DCU,
had the board being competent enough not to allow Richard Mangone
to defraud the credit union of $10 million. It is money that was
legitimately yours, it is gone forever. It is 3% of your hard
earned savings. That is by no means an insignificant amount.
11
Q: OK you've got me interested, what I can I personally do about all
this?
A: The DCU special meeting is at 7:30 on Tuesday November 12th at the
Sheraton Tara in Framingham. If you are at all interested in the
future of the credit union and your deposits there I suggest you
go and vote your conscience. Obviously you can tell that I
strongly believe that the board has to be voted out (they can be
subsequently re-elected should that be the members wish) but
whether you agree with me or disagree with me it is your duty as a
DCU owner/member to make your voice/vote heard in determining the
direction of your credit union.
Q: Isn't it just easier to withdraw my money and vote with my feet?
A: The answer here I believe is a resounding NO. You have far less
idea of the state of an institution that you don't own than one
you do. You own the DCU. If you had a board of directors that
actually believed in honest and straight communication with the
membership you could feel more secure about your financial
institution than one that just treated you as a customer. You
have the power to change things, you only have to use it. I hope
to see you at the special meeting.
12
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Source: Copied from DCU Annual Reports 1985-1990. This information was
contained in the auditors notes. The auditors notes were not
published with the DCU Annual Reports.
Loans Outstanding: (in thousands)
1985 1986 1987 1988 1989 1990
------ ------ ------ ------ ------ ------
Automobile 32,962 51,452 44,384 39,803 34,955 33,510
Mortgage 25,845 74,557 70,691 72,822 69,723 71,553
Home Equity -- -- 43,338 63,441 81,203 89,457
Other Secured 3,463 6,082 6,459 7,212 6,411 5,096
Unsecured 15,124 9,820 15,073 21,153 35,706 39,721
Participation loans 2,520 8,010 9,886 -- -- --
with other CU *
Commercial RE loans * -- -- -- 12,766 15,332 8,727
* = Description of participation loans changed to Commercial RE loans.
(Note: Participation loans reached a high of $18 million in 1990.)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Then around July of 1990 the first default on these loans occurred.
By the end of 1990, DCU had foreclosed or substantively repossessed about
$6 million in property that secured these loans. In 1990, DCU had
already charged off $2.6 million in losses associated with these
participation loans. Yet no mention of this significant financial
information was made in the 1990 annual report. But the auditors saw
it significant enough to include the following notes to the 1990 annual
report. (Notes that have not been made available to the DCU
membership by DCU).
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Source: Copied from DCU Annual Reports 1985-1990. This information was
contained in the auditors notes. The auditors notes were not
published with the DCU Annual Reports.
Allowance for Loan Losses: (in thousands)
1985 1986 1987 1988 1989 1990
----- ----- ----- ----- ----- -----
Balance, Beg. Year 540 1161 1159 1272 1429 1533
Provision Charged to 747 243 240 240 240 4406
Operations
Loans charged off (members) (130) (284) (187) (140) (173) (283)
Participation loans (2696)
Charged Off
Recoveries 4 39 60 57 37 21
Balance, End Year 1161 1159 1272 1429 1533 2981
(Note: $2,696,000 loss on participation loans in 1990.)
13
" (3) Loans
The credit union grants home equity loans, residential loans and
consumer loans to members. The credit union also participates in
commercial real estate loans primarily in the Cape Cod region.
Approximately 67% of the loans granted by the credit union are
secured by real estate. The ability and willingness of the home
equity, single family residential and consumer borrowers to honor their
repayment commitments is generally dependent on the level of overall
economic activity within the borrowers geographic areas and real estate
values. The ability and willingness of commercial real estate borrowers
to honor their repayment commitments is generally dependent on the
health of the real estate economic environment in the borrowers
geographic areas and the general economy."
"Real Estate Acquired by Foreclosure or Substantively Repossessed
----------------------------------------------------------------
Real estate acquired by foreclosure or substantively repossessed is as
follows:
Dec. 31 1990
------------
Land $4,131,000
Commercial Real Estate 2,562,000
----------
$6,693,000
At December 31, 1990, real estate acquired by foreclosure or
substantively repossessed included approximately $5,668,000 of
properties that were substantively repossessed."
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
14
|
| 350.3 | Another letter which belongs here | MLTVAX::SCONCE | Bill Sconce | Thu Nov 07 1991 09:06 | 19 |
| .0> I'm not
.0> asking you to drag your spouse or your teenage children along,
Like some others? :) :)
(Tom probably refers here to the letter which is circulating asking for votes
for the current board. That letter (*), written by a high-level manager,
requests support from people in his organization and reminds them that their
children can vote too, if they are over 16 and had $5.00 in a personal savings
account as of 1 Nov.)
----------------------------------------------
(*) I wish that letter could be posted here, but the Corporate P&P, as I
understand them, forbid that. The letter did include a request that it
be widely forwarded, though, so it should be all right for anyone who
has received a copy to forward it via MAIL.
|
| 350.4 | A silent DCU member speaks | GUFFAW::GRANSEWICZ | Someday, DCU will be a credit union. | Thu Nov 07 1991 10:04 | 151 |
|
[From a DCU member who wishes to remain anonymous.]
One of the arguments that I see being made for keeping the current DCU Board
is that they were lied to and hoodwinked and thus not responsible for the
loss of millions of our dollars. As such, the argument goes, they are
blameless and should be retained.
To me, the major eye opener of this whole situation is not necessarily that
the board approved the participation loans, but their laissez-faire attitude
towards maintaining adequate internal controls to ensure that our assets
were safeguarded. In my opinion, if this were a publicly held corporation,
the SEC would not take too kindly to the Board's inaction on this front.
According to the Foreign Corrupt Policies Act of 1977, companies registered
with the SEC will:
1) make and keep books, records and accounts that, in reasonable
detail, accurately and fairly reflect the transactions of the registrant and
the disposition of its assets
2) devise and maintain a system of internal accounting controls
sufficient to provide reasonable assurances that certain specified
objectives are met.
Who is ultimately responsible for ensuring that the above are met? The BOD
and operating management. According to the SEC, "The establishment and
maintenance of a system of internal controls is an important management
obligation. A fundamental aspect of management's stewardship responsibility
is to provide shareholders with reasonable assurances that the business is
adequately controlled. Additionally, management has a responsibility to
furnish shareholders and potential investors with reliable financial
information on a timely basis. An adequate system of internal accounting
controls is necessary to management's discharge of these obligations."
Further, Arthur Andersen (big 8 public accounting firm) states,
"...corporate officers and directors may perceive a need for more specific
information about their companies' internal controls and what weaknesses or
deficiencies exist. It is likely that they will turn to their independent
public accountants and internal auditors to provide such information."
If the several third-party quotations attributed to the DCU Board members
and President which have appeared in this conference are correct, it is
apparent (and appalling) to me that the BOD did not take this responsibility
seriously. For example:
FROM:
Note 306.23 CC's 2nd Meeting Today at AKO 23 of 26
GUFFAW::GRANSEWICZ "Someday, DCU will be a credit " 211 lines 10-OCT-1991 17:25
--------------------------------------------------------------------------------
.0>Improved Controls:
.0>
.0> Chuck repeated his strategy for tightening internal controls in order to
.0> prevent any reoccurrences of fiascos such as the Mangone fraud.
.0>
.0> - Appoint an internal auditor to report to the Supervisory Committee
.0> - Work closely (personally) with the Supervisory Committee so that
.0> they understand how to effectively monitor C.U. operations
.0> - Replace the external auditor with one that is experienced in auditing
.0> credit unions
.0> - Use a general counsel answerable to the C.U. membership, not the Pres.
> These are particularly funny at this point in time. I have been trying to
> reach the people that are supposedly on the Supervisory Committee of
> DCU and have been told this committee hasn't meet since the early
> eighties. In fact the people listed as members on it may not even know
> that they still serve on it. And one guess on who appoints the
> Supervisory Committee? Yes, the BoD. And to top it all off, one of
> the BoD can serve on the Supervisory Committee. This is important
> because it takes a UNAMINOUS vote of the Supervisory Committee to
> remove a director. However, the Supervisory Committee can call a
> special meeting by a majority vote.
Observations:
o "APPOINT" an internal auditor
I read this as saying that none currently exist nor did they exist during
the Mangone episode in question. If this is a correct interpretation, this
is absolutely incredible to me. IMHO, a publicly held company of the size
of DCU with no internal audit staff would see its stock plummet as soon as
this news came to the attention of Wall St analysts.
o "Replace the external auditor with one that is experienced in auditing
credit unions"
Huh???!!! So what WAS this firm experienced in? Why were they hired in the
first place? This would be FIRST and foremost of many criteria that I would
require that an external auditor meet - just to be CONSIDERED for retention.
No internal audit staff and an external auditor inexperienced in auditing
credit unions? So far we have hay and a match.
o "Work closely (personally) with the Supervisory Committee so that they
understand how to effectively monitor C.U. operations"
AND
o "I have been trying to reach the people that are supposedly on the
Supervisory Committee of DCU and have been told this committee hasn't meet
since the early eighties. In fact the people listed as members on it may
not even know that they still serve on it."
I read this as saying that current and past Committees do not and didn't
understand what was expected of them nor what major symptoms/problems to
look for. No wonder they haven't met in almost a decade. If no one had any
expectations of me and I didn't have any mandate, objectives or clue as to
how to go about my duties, I wouldn't waste my time in meetings either.
Does this sound like the DCU BOD took its overseeing responsibilities
seriously? No internal audit staff, an external auditor inexperienced in
auditing credit unions, and a Supervisory Committee who does not know what
to do and thus does not meet. Hay and match, meet gasoline.
No, the DCU does not issue stock and is not registered with the SEC. I am
not experienced with credit union accounting regulations and practices and
do not know if they are held to similar standards. But, as a member and
investor I expect no less from this institution than I do from any of the
others in which I invest. Should we as members entrust our money to ANY
company (or credit union, or bank or S&L or...) which does not take every
step to ensure that our investments are safeguarded against abuse and fraud?
This is one member who thinks not.
Chuck Cockburn has stressed that these good accounting practices will now be
adopted. This is good and I am heartened. But, the people responsible for
ensuring that these practices were in place during the 80's are saying, "We
did a good job, we were just hoodwinked. Keep us around so we can continue
to do a good job." To this I respond, hoodwinking of management is what
GOOD internal AND external auditors are hired to keep from happening. I
believe that because the BOD did not take seriously what Chuck Cockburn does
created an atmosphere which allowed the Mangone fraud to prosper and go
undetected until recently.
So, even if you accept the BOD's assertion that it was lied to in such an
expert manner that they could not uncover the deception, I ask you to
consider that this is exactly why good accounting practices require a GOOD
external auditor and recommend that they be supplemented by a GOOD internal
auditing staff. It is not reasonable to expect managers and BOD members to
know everything there is to know about everything at all times. That is why
Digital pays millions of dollars to Coopers and Lybrand and to its own
internal auditing staff. In my opinion, the DCU BOD and operating
management made it easier for the Mangone fraud to occur by not requiring
more powerful and effective monitoring organizations.
In passing judgment on the BOD's ability to oversee DCU in the future, I
resort to the old adage "fool me once, shame on you. Fool me twice, shame
on me."
|
| 350.5 | | MLTVAX::SCONCE | Bill Sconce | Thu Nov 07 1991 13:58 | 3 |
| I've been asked by several readers if I will forward the e-mail message
suggesting that BoD supporters bring their children to vote at the
Special Meeting. The answer is: Yes. Send mail if you want a copy.
|
| 350.6 | | SQM::MACDONALD | | Thu Nov 07 1991 15:11 | 9 |
|
Re: .5
I've read that memo. I understood that the DCU official line
was that only the primary member was eligible to vote. Is
there a bit of chicanery going on here?
Steve
|
| 350.7 | 1 member, 1 vote | MLTVAX::FISHER | Building a faster pig | Thu Nov 07 1991 15:49 | 6 |
| I've also read the memo. In it, Mark Steinkrauss specifically states
(among other things) that spouses and any children who are sixteen or
older and members may vote also. You could hardly ask for a better source
than that.
Carl
|
| 350.8 | Full members only? | PLOUGH::KINZELMAN | Paul Kinzelman | Thu Nov 07 1991 15:54 | 4 |
| I *hope* what Mark means is that spouses and kids over 16 THAT HAVE
THEIR OWN ACCOUNT (and so qualify as a full member) can vote. We've
consistantly been told that only full members (not the other half of a
joint account) can vote.
|
| 350.9 | | SQM::MACDONALD | | Thu Nov 07 1991 16:57 | 8 |
|
Re: .8
As I remember the memo, that is the way that he worded it so there's
no funny business there.
Steve
|
| 350.10 | Notice received? | TLE::EKLUND | Always smiling on the inside! | Thu Nov 07 1991 17:04 | 8 |
| Since I have a few over-16 kids, I can tell you that we
received notices for each of them - and NOT notices to the
kids under 16! Amazing. I guess if they were notified, they
are qualified to attend; if not notified, they probably have the
wrong kind of account.
Dave Eklund
|
| 350.11 | What he actually said | MLTVAX::SCONCE | Bill Sconce | Thu Nov 07 1991 17:39 | 14 |
| The criteria Mark Steinkrauss's letter cited as permitting spouses and
children to vote were:
o Age of sixteen or older
o Existence of a $5.00 savings account in their name
o Existence of that account as of 1 November 1991
-----------------------------------------
I think the one excluded case is the joint account, which for voting
purposes is treated as one "member" only.
|
| 350.12 | | SSDEVO::EGGERS | Anybody can fly with an engine. | Thu Nov 07 1991 18:27 | 39 |
|
Here is the distribution list from the letter mentioned in .3, .5, and
.7:
HOUPIS @CSSE @VMSMAIL,
DICK CALANDRELLA @OGO,
DON BRADLEY @OGO,
FALVELLA @MSBCS @VMSMAIL,
MILLER @LANDO @VMSMAIL,
GAUBATZ @WRKSYS @VMSMAIL ),
KULEVICH @WRKSYS @VMSMAIL,
WHITTAKER @LDP @VMSMAIL,
DONOVAN @STEREO @VMSMAIL,
PATT @LESCOM @VMSMAIL,
BLANCHETTE @LANDO @VMSMAIL,
JANICE CASKER @MLO,
BARRY MIKE @MRO,
CAROLE JOHNSON @MKO,
JEFF BARTMAN @MRO,
WALTER KASSELL @MRO,
CARLSONJ @NUTMEG @VMSMAIL,
EAGAN @FROSTY @NUTMEG,
BOTT IKELER @AKO,
PAT GUNNING @AKO,
LINDA SANDERS @MET,
LKIRKLEY @HYEND @VMSMAIL,
PRICE @HYEND @VMSMAIL,
WHITMAN @HYEND @VMSMAIL,
ROSS @HYEND @VMSMAIL,
MCLAREN HARRIS @MRO,
KALLIS @LESCOM @VMSMAIL,
ZWICKER @TPSYS @VMSMAIL,
TERRIE MCADAM @MKO,
SATTERFIELD @LESCOM @VMSMAIL,
LEE KATZ @TTB,
PAT MURPHY @MLO,
MARIE @CIMNET @VMSMAIL,
MAHAN @PENUTS @VMSMAIL
|
| 350.13 | a paraphrase of the letter | SSDEVO::EGGERS | Anybody can fly with an engine. | Thu Nov 07 1991 18:32 | 38 |
| And here is a paraphrase of the letter; I'm not allowed to post the
original. If you want a copy, in case I've distorted something, send
mail to one the people in earlier notes in this topic.
The letter in question is from Mark Steinkrauss (Investor Relations) to
Brad Allen. The first paragraph states the time and location of the
special meeting and says the meeting will consider several items of
"vital interest" to DCU members.
Mark says he is chairman of the DCU BoD, has worked with Brad for some
years, and requests Brad support the BoD at the special meeting. He
continues that the BoD is being opposed by a "dissident group" and
communications have not resulted in "constructive results". "This small
group has conducted what would seem to be a 'witchhunt' with the intent
to discredit the board of directors and the credit union." He says the
special meeting was called by petition, but he says the group was small
and he does not mention the 1200+ petitions. He says the results to the
DCU would be "very negative", and states the competence and commitment
of the current BoD and that all 88,000 DCU members were involved in
their election process.
Mark suggest that Brad take a look at the "vote of support" that Ilene
Jacobs and Rob Ayres put in LiveWire.
In the next paragraph, Mark repeats the importance, acknowledges that
the meeting is a "big imposition", that help is needed, and repeats the
request for attendance at the special meeting. He offers more
information and requests a reply. He specifically offers a "DCU board
response to the VAXNOTES file". He finished by stating the rules under
which dependents can vote.
All in all, the letter is nicely written and low key, except for a few
places where I've put words in quotes.
I've included the distribution list in the previous note. I can't tell
if the list was put on the letter by Mark Steinkrauss, Brad Allen, or
somebody else.
|
| 350.14 | | SSDEVO::EGGERS | Anybody can fly with an engine. | Thu Nov 07 1991 19:29 | 2 |
| Does anybody have a copy of the "DCU board's response to the VAXNOTES
file", or is that the same thing as Susan Shapiro posted in 343.0?
|
| 350.15 | RE: .14 Yes, 343.0 is it | GUFFAW::GRANSEWICZ | Someday, DCU will be a credit union. | Thu Nov 07 1991 20:23 | 1 |
|
|
| 350.16 | Please, not about "having worked together" | NECVAX::HUTCHINSON | | Fri Nov 08 1991 09:12 | 24 |
| Re 350.13 & Mark Steinkrauss's letter
I also received a copy of Mark's letter. What troubles me about it is
that it is an appeal to support the BoD based on "having worked together
with you for a number of years." I do not think that our decision should
be based on past associations, or on helping old friends. Let's decide
on the issues of what these directors have and have not done versus their
responsibilities.
Perhaps there will be some who consider this a question of friendships.
Here's one voice raised against that. I do hope that other members not
engage in this kind of appeal.
Please attend, participate and vote your conscience.
- not -
"But, I need your help. If at all possible, please attend the
meeting and support your credit union and the current board of
directors."
Jack
|
| 350.17 | | CNTROL::MACNEAL | ruck `n' roll | Fri Nov 08 1991 10:23 | 3 |
| What Mark has done is not that much different from what Phil is doing.
Both have sent out memos to a wide distribution list in an attempt to
garner support for their side.
|
| 350.18 | Digital Information Protection Policy | TLE::AMARTIN | Alan H. Martin | Fri Nov 08 1991 10:26 | 61 |
| Regarding Mark Steinkrauss's letter to colleagues requesting their for vote for
support at the special meeting:
The letter carries the label "DIGITAL INTERNAL USE ONLY Document".
Here is the corporate policy relevant to such documents:
"
Information Protection Effective: 01-DEC-90
Section: 8.03
Scope: Worldwide
Policy
| Digital has a responsibility to protect all of its assets - people,
| property, products and information. It is Corporate policy that
| our information be controlled and protected as a vital business
| resource. This applies to all information assigned a Digital
| Classification used, generated or held within Digital.
| Employees have a responsibility to understand the information
| protection program and to protect all Digital Classified
| information from origination to destruction. Failure to do so may
| result in corrective action and discipline in accordance with
| Personnel Policy 6.21 and/or the filing of charges with the
| appropriate law enforcement agency(s).
Practice
| Digital Classified information is any information material which is
| owned by Digital, or entrusted to Digital which requires protection
| against unauthorized disclosure and has been so designated. It is
| to be used only for authorized Digital business purposes.
| Information shall be protected appropriate to assigned
| classification by all persons who handle, use, or have access to
| such information. For instructions see Corporate Security Manual,
| Standard 10.1. This information is also available on VTX.
| CLASSIFICATION CATEGORIES
| (Increasing Order of Sensitivity)
|
| DIGITAL INTERNAL USE ONLY
| DIGITAL CONFIDENTIAL
| DIGITAL RESTRICTED DISTRIBUTION
| DIGITAL PERSONAL
| DIGITAL INTERNAL USE ONLY: This information label indicates that
| unauthorized or inadvertent disclosure could cause business damage
| to the Corporation. It can be distributed to Digital employees but
| should not be given to customers, competitors, vendors, or other
| persons or organizations without originator authorization.
...
"
It's not obvious to me that the contents of the letter are owned or entrusted to
Digital for authorized business purposes. One hopes that the labeling was an
unintentional artifact of the electronic mailing system.
/AHM
|
| 350.19 | | SQM::MACDONALD | | Fri Nov 08 1991 10:39 | 17 |
|
Come on let's ligthen up about Mark Steinkrauss appeal for
help. He has the right to do that. The people who read
it, like us, are not stupid. If it is fraught with Mark's
perception which we might think is wrong, they can figure
that out for themselves.
Frankly, I doubt that any high level Digital manager is going
to actively and visibly support the DCU BoD without looking into
the whole matter first. If we are right, then they'll probably
reach the same conclusions many of us have. If they reach a
different conclusion then perhaps we aren't so right after all.
I suggest that we just trust the overall process to come out
with the best result for all.
Steve
|
| 350.20 | Loyalty vs. Integrity | RGB::SEILER | Larry Seiler | Fri Nov 08 1991 10:45 | 23 |
| It is true that many people involved in this dispute are sending messages
to as many people as possible, including Ilene jacobs, who posted her message
in LiveWire, a forum not open to most of us.
However, I have never yet seen a message encouraging anyone to vote out
the board based on themes like "we've worked together" or "you ought to
support me". On the contrary, while such messages differ widely in
content and style, every one has been based on the concept that "I think
voting out the board is the right thing to do". A large fraction have
gone on to say explicitly "I want you to do what *you* think is right".
That difference -- between Mark asking for support on the grounds of
personal loyalty and Phil and others asking for support on the grounds
of doing the right thing, points up one of the reasons why I support the
effort to remove the board.
And that's not even considering the propriety of Mark's asking from
loyalty from people who in effect work for him, whether at Digital or at
the DCU. For myself, I can ask nothing more than that you attend, listen
to the facts, and do what you think is the right thing.
Enjoy,
Larry
|
| 350.21 | "Lighten up" -- yes, at least some of the time | MLTVAX::SPINS::SCONCE | Bill Sconce | Fri Nov 08 1991 11:01 | 25 |
| Advice to "lighten up" is a friendly-enough idea. Accepted -- this business
gets pretty depressing sometimes.
As far as Mark Steinkrauss's message goes, there are two points:
1) Content
He asks for help, but gives no reason beyond loyalty (and a vague
allusion to "negative" consequences) why anyone should support
the current board.
No reason not to treat this cheerfully. It's good news. It means
that calling the Special Meeting, and adopting its agenda, are on
the right track.
Nothing but "thank yous" needed here.
2) Professionalism
Directing his request for support to his subordinates, not to mention
suggesting that his subordinates should also secure the votes of
their children, deserves criticism (IMO). It's hard to see how to
"lighten up" or be cheerful about such behavior in very senior
executives. Sorry.
|
| 350.22 | Use Mark's distribution list for our message | POBOX::KAPLOW | Free the DCU 88,000 11/12/91! | Fri Nov 08 1991 12:04 | 6 |
| I would suggest that the group that sent out the latest "fact
sheet" forward it to the same distribution list that Mark used,
and ask that it be given the same distribution. After all, we have
circulated Mark's comments to our group so that they could hear
both sides, it is only proper that Mark's supporters be told our
side as well.
|
| 350.23 | | SSDEVO::EGGERS | Anybody can fly with an engine. | Fri Nov 08 1991 13:14 | 4 |
| Good idea.
I suppose the Digital rules on solicitation are all being ignored
by both sides anyway, so in the interests of equal time ....
|
| 350.24 | | GUFFAW::GRANSEWICZ | Someday, DCU will be a credit union. | Fri Nov 08 1991 17:06 | 9 |
|
RE: .23
I don't quite agree. I am not soliciting people that work for me to join
me at a meeting and vote for something. I am also not a VP level in
this company. Someone at that level in the corporation speaks FOR the
corporation. It is the use of that position, and all the weigh it
carries, to forward their opinion as company backing that is objected to.
|
| 350.25 | | COMET::PERCIVAL | I'm the NRA, USPSA/IPSC, NROI-RO | Sat Nov 09 1991 11:31 | 16 |
| <<< Note 350.24 by GUFFAW::GRANSEWICZ "Someday, DCU will be a credit union." >>>
I have to agree with Phil. We have seen a great many folks in this
conference tell us how they will vote. We have seen detailed reasons
given for their personal choice. I don't believe that we've seen
anyone say, "Come to the meeting, vote to recall the BoD".
We HAVE seen people say, "Come to the meeting and vote". Even those
that are opposed to recalling the Board have been encouraged to come
to the meeting.
Given the content of the Steinkrauss memo, I believe that a case
could be made that it violates the non-solicitation policy.
Jim
|
| 350.26 | | SSDEVO::EGGERS | Anybody can fly with an engine. | Sat Nov 09 1991 12:47 | 15 |
| I agree that the large majority, probably the overhwelming majority, of
comments in here say, "Come to the meeting and vote," and not "Come to
the meeting and vote for us." And that's a very good thing.
I would not suggest starting a case of solicitation against the
Steinkrauss letter because that would open this conference to minute
examination, and I'm not at all sure I couldn't find an example of
solicitation in here somewhere.
My comment in .23, I think it was, was made more in humor than anything
else, but given my own comments to others to avoid trivia, I shouldn't
have posted it and started this digression.
On the other hand, if anybody starts after BEIRUT::DCU for violations
of the rules, there is an interesting counter-case ... :-)
|
| 350.27 | | MIZZOU::SHERMAN | ECADSR::Sherman DTN 223-3326 | Sat Nov 09 1991 13:44 | 14 |
| When someone starts to lose an argument, they can do at least two
things:
1. Criticize the opponent about method of argument.
2. Change the topic.
Since there's not much time left, I'd rather focus on the real issues
involving the agenda items. One good thing about Mark's memo is that
he is doing what he can in it to entice people to come to the meeting.
I am in favor of that, so long as these folks stay honest in trying to
do the right things and for the right reasons.
Steve
|